strategic information systems management

Strategic InformationSystems Management

Strategic InformationSystemsManagement

Kevin Grant, Ray Hackney and David Edgar

Strategic Information

Systems Management

Kevin Grant, Ray Hackney and

David Edgar

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Brief Contents

Forewords xviiPreface xixAcknowledgements xxvContributors xxviiAbout the Authors xxix

1 Business Strategy for the Digital World 12 Business Exploitation of Information and Communication

Technology Systems 323 Information Systems Development Approaches 514 Disruptive Technologies and Applications 775 Business IT/IS Alignment 1036 Strategic IS/IM in Context 1397 Global Issues in Information Management 1918 Strategic Knowledge Management 2159 Organizational Change, Culture and Strategic IS/IT Led Change 24610 IS/IT Benefits Management and Realization 27311 Strategic IT/IS Leadership and IT Governance 30012 IT/IS Professionalism, Ethics and Security 342

Index 379

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Contents

Forewords xviiPreface xixAcknowledgements xxvContributors xxviiAbout the Authors xxixWalk-through Tour xliAbout the Website xliii

1 Business Strategy for the Digital World 1

1.1 Introduction 11.2 The development of strategic management 21.3 The development of the digital economy 61.4 The Positioning Approach 91.5 The competitive environment 121.6 The Resource-Based View 151.7 E-business and the Resource-Based View 161.8 Strategic information systems and the RBV 181.9 Dynamic capabilities 211.10 M-commerce 24

Conclusion 26Key learning points 27Review questions and tasks 27Key further reading 28References 29

2 Business Exploitation of Information and CommunicationTechnology Systems 32

2.1 Introduction 322.2 The importance of ICT in contemporary organizations 332.3 Evidence on the exploitation of ICT by organizations 362.4 Challenges associated with exploiting ICT 382.5 Understanding ICT implementation and use 402.6 Improving the exploitation of ICT 43


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3 Information Systems Development Approaches 51

3.1 Introduction 513.2 Why Information Systems Development is key to business strategy 523.3 A brief history of Information Systems Development 533.4 Contemporary Information Systems Development (ISD) 583.5 The Dynamic Systems Development Method (DSDM) 613.6 Case study: London Ambulance Service – from failure to success 67


4 Disruptive Technologies and Applications 77

4.1 Introduction 774.2 Context for disruptive technologies and applications 784.3 Strategy of disruption and innovation 814.4 Internet and related technologies 854.5 Focus of disruptive internet applications 864.6 Emerging disruptive technologies: features and applications 914.7 MMORPGS and virtual worlds 954.8 Future issues 97


5 Business IT/IS Alignment 103

5.1 Introduction 1035.2 Business alignment 1055.3 IT/IS alignment 1075.4 Assumptions of and in IT/IS alignment 1095.5 Evolution of IT/IS alignment and its suggested direction of travel 1105.6 Business benefits of IT/IS alignment 1115.7 IT/IS alignment and Enterprise Architecture 1145.8 Academically-based tool kits for IT/IS alignment 1195.9 Practitioners’ challenges 124


6 Strategic IS/IM in Context 139

6.1 Introduction 1396.2 The nature of public sector organizations 1406.3 Electronic government (e-government) 144

x Contents

6.4 E-government applications 1456.5 E-government – a global phenomenon 1466.6 Strategies for e-government 1476.7 E-government maturity models 1496.8 Issues and challenges in e-government 1516.9 Emerging technologies 1546.10 Knowledge Management and e-health in

NHS Ayrshire and Arran 1566.11 What are SMEs? 1676.12 Why are SMEs important? 1686.13 What is distinctive about SMEs? 1686.14 SMEs and IS/IT: drivers and inhibitors 1716.15 IS/IM competencies for SMEs 1736.16 Planning for IS/IT in SMEs 1746.17 Emerging technologies and practices for SMEs 1776.18 SMEs, IS/ITand policy 1796.19 Comparing and contrasting the two contexts 182


7 Global Issues in Information Management 191

7.1 Introduction 1917.2 Changes in society 1947.3 IT/IS outsourcing and offshoring 1967.4 Emerging technologies and global IM 1997.5 Global information management and management

decision-making 2077.6 The greening of IT 208


8 Strategic KnowledgeManagement 215

8.1 Introduction 2158.2 Evolution of the knowledge economy 2168.3 What is knowledge management? 2178.4 Knowledge management models 2208.5 Organizational learning and knowledge 2278.6 Intellectual capital 2298.7 Knowledge and intellectual capital as a source of sustainable

competitive advantage 2328.8 Knowledge management strategies 233

Conclusion 236Key learning points 236

Contents xi

Review questions and tasks 237Key further reading 241References 242

9 Organizational Change, Culture and StrategicIS/IT Led Change 246

9.1 Introduction 2469.2 Human behaviour and organizational culture 2509.3 Characterizing organizational culture 2529.4 Different types of change 2549.5 Managing for change 2579.6 Getting the organization ready to accept strategic

IS/IT led change 2579.7 Dealing with and managing resistance to change 2609.8 Stakeholder engagement 2629.9 Managing change across boundaries 2639.10 Strategic leadership in large and complex organizations 2639.11 Achievement of the organization’s new goals and objectives 2649.12 Pitfalls to avoid when leading strategic change 265


10 IS/IT Benefits Management and Realization 273

10.1 Introduction 27310.2 Evaluating information systems 27410.3 The IT productivity paradox 27610.4 Benefits management 27710.5 Financial aspect of IT 27810.6 Benefits management techniques 28010.7 Benefits management approach 28010.8 Benefit realization approach 28110.9 Life cycle thinking and ITeconomics 28210.10 Requirements for the business cases 28610.11 Organizing the financial control function 28610.12 Case study: IBG Banking 287


11 Strategic IT/IS Leadership and IT Governance 300

11.1 Introduction 30011.2 What is leadership? 301

xii Contents

11.3 What is strategic leadership? 30111.4 The differences between managers and leaders 30311.5 Transformational leadership 30711.6 Leading technology enabled innovations 30811.7 Leadership competencies for technology led innovation 30911.8 Leading IT geeks 31211.9 Corporate governance 31311.10 IT governance definition 31411.11 Corporate governance and IT governance 31611.12 The growing maturity of IT governance 31811.13 Corporate Governance of Information Communications

Technology 31811.14 Building effective IT governance structure, participation

and process 32111.15 IT governance structures 32211.16 Participation in governance 32411.17 IT governance structure 32411.18 Project and programme boards 32611.19 Project and programme management frameworks 332


12 IT/IS Professionalism, Ethics and Security 342

12.1 Introduction 34212.2 IT/IS professionalism 34312.3 What is professionalism? 34412.4 Towards an understanding of IT professionalism 34512.5 What next for IT professionalism? 34912.6 Ethical behaviour in IT/IS 34912.7 Professional organizations and codes of ethics 35112.8 Legislation and its impact on the IT function 35512.9 Intellectual property 35612.10 Types of IT/IS security threats 35912.11 Non-technical attacks 36712.12 Countermeasures: technical controls 36812.13 Countermeasures: non-technical controls 370

Conclusion 374Key learning points 374Review questions and activities 376Key further reading 376References 377

Index 379

Contents xiii

List of Figures

Figure 1 The landscape of Strategic Information Systems Management xxFigure 1.1 Five forces framework 12Figure 1.2 The m-commerce value chain 25Figure 3.1 DSDM in overview 65Figure 4.1 Guardian.co.uk blogs 93Figure 4.2 Direct2Dell 93Figure 5.1 Zachman EAModel 117Figure 5.2 Earl’s Multiple Methodology 120Figure 5.3 The Strategic Alignment Model 121Figure 5.4 Luftman’s Maturity Assessment Model 123Figure 6.1 Stakeholder mapping 143Figure 6.2 Directgov – public services all in one place 145Figure 6.3 Individual country ranking regarding online sophistication

maturity 146Figure 6.4 CSFs for countries with different economic contexts 148Figure 6.5 CSFs for countries with different economic contexts

(Evans andWurster’s concept of ‘reach and richness’) 149Figure 6.6 Dimensions and stages of e-government development 150Figure 6.7 Scotland and Ayrshire: location of NHS Ayrshire and

Arran hospitals 157Figure 6.8 NHS Ayrshire and Arrans Knowledge Management and

eHealth Services Annual Report 2007–08 159Figure 7.1 Types of outsourcing 198Figure 8.1 The SECI model: demonstrating four modes of knowledge

creation 220Figure 9.1 The traditional and modern approaches to meeting customers’

needs 248Figure 9.2 Spiral framework showing relationships between

an organization’s state and direction 255Figure 10.1 A benefit dependency network 281Figure 10.2 Three main activities of full life cycle management 282Figure 10.3 IBG’s organizational portfolio 291Figure 10.4 Business process portfolio 292Figure 10.5 Research and development portfolio 293Figure 11.1 IT governance: nature and essence 316Figure 11.2 IT Governance Institute: IT Governance Global Status

Report (2008) 318Figure 11.3 Butler Group, IT Governance Strategy Map 322Figure 11.4 Typical ITorganization 323

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Figure 11.5 IT governance modes of operation 323Figure 11.6 High level model of IT governance 325Figure 11.7 PRINCE2: directing a project process 333Figure 12.1 BCSModel of Professionalism (2006) 348Figure 12.2 Distributed Denial of Service (DDos) Attacks 366Figure 12.3 A basic network security architecture 370Figure 12.4 The ‘Get Safe Online’ website 372

List of Figures xv

List of Mini Case Studies

Mini Case Study 1.1 The virtual chain of Fedex 11Mini Case Study 1.2 Swiss Re: Service innovation for a ‘secondmover’

advantage and intellectual property 17Mini Case Study 1.3 ITand logistics in Hungary 19Mini Case Study 1.4 EDS in Hungary 20Mini Case Study 2.1 E-Software Inc. 46Mini Case Study 4.1 Flickr 100Mini Case Study 5.1 The benefits of effective IT/IS alignment 128Mini Case Study 6.1 UK government use of web 2.0 technologies: The

power of information and governmentmashup 156Mini Case Study 6.2 US government use of web 2.0 technologies:

Online town hall 156Mini Case Study 6.3 Selling online from the highlands of Scotland 173Mini Case Study 6.4 Growth and IS/IT in the legal services sector 181Mini Case Study 7.1 Clinical research 211Mini Case Study 8.1 TheWorld Bank 238Mini Case Study 9.1 Changes and consequences 256Mini Case Study 9.2 PharmaCo: from ‘few and large’ to ‘many and small’ 268Mini Case Study 11.1 BP Exploration: an example of Federal IT governance 324Mini Case Study 11.2 COBITand ITGovernance in Practice: Prime Learning 336Mini Case Study 12.1 [Un]ethical issues in IT/IS I 351Mini Case Study 12.2 [Un]ethical issues in IT/IS II 352Mini Case Study 12.3 Second Life: A new dimension for trademark

infringement 360

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Forewords

This book is a timely, authoritative, and comprehensive collection of scholarlymaterials in the area of Strategic Information Systems Management (SISM).

It is a unique compilation in the sense that it explains how recent technology canbe deployed in ways that lead to managerial, organisational and societal improve-ments. The strategic focus in the book of exploiting these advances is critical tomanagement in our complex, fast changing and uncertain world.

This book provides plenty of useful material that is insightful to academics, stu-dents and practitioners. It will facilitate interaction between scholars and the largerprofessional communities within which we serve. The content of this book offersmany ideas in terms of both undergraduate and graduate courses, that may becrafted, which will significantly influence colleagues engaged in curriculumdesign.

I am delighted to acknowledge this book as a valuable collection of scholarlymaterials in the field. I would recommend the book to anyone involved in teach-ing, researching or learning within the area of SISM.

May I take this opportunity to congratulate the editors on producing a trulyexcellent book that contains much wisdom to take the field of SISM forward.

Bernard C.Y. Tan (Dr.)Professor of Information SystemsNational University of Singapore

PresidentAssociation for Information Systems 2009–2010

September 2009

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Iam delighted to add my support to this book and my congratulations andthanks to those who have made possible its publication, as it is a timely add-

ition to the canon. In particular it is refreshing to see colleagues from industry andcommerce collaborating with scholars from academia to produce a work that suc-cessfully combines intellectual and academic rigour with empirical and practicalexperience.

As is the case in many fields, though sadly evident in all too few, industry andcommerce rely on high quality research and academic study (and effective teach-ing) whilst useful academic study must be informed by the experience of andneeds of those whose role it is to apply best thinking and best practice in their dailylives. This work is an example of both communities working well to good effect;indeed a number of chapters are co-authored by academics and practitioners.

To those practitioners who dismiss academic work in the field of SISM (andsadly some do), I would refer them to Leonardo:

‘‘He who loves practice without theory is like the sailor who boards ship without rudderor compass and never knows where he may cast.’’

To those academics who examine the work of practioners and find it lacking in atheoretical underpinning, I would ask them to look more closely; the most success-ful are those who are familiar with the latest research and thinking and are able toapply such thinking pragmatically to the particular circumstances that apply, in-cluding especially the capabilities of the organisation seeking to adopt informationand technology to best effect.

I commend this work to anyone responsible for information systems manage-ment in their enterprise and to those of us engaged in the provision of timely andvaluable advice on this topic to our clients.

Christopher T. Loughran FBCSVice Chairman & Partner – Leader of the Technology consulting practiceDeloitte LLP

xviii

Preface

The Landscape of Strategic Information SystemsManagement

The motivation for this book is to conceptualize, comprehend and communi-cate the complex nature of strategic information systems management

(SISM). It is primarily intended to explain the potential and value adding nature ofinformation technology (IT) and information systems (IS) for exploitation withinmodern forward thinking organizations. The book reflects an assembly of out-standing international academic thought leaders and expert practitioners whohave shared their knowledge, creativity and intellect to provide a contemporaryillustration of leading edge ideas within the discipline of SISM.

Historically the use and perception of SISMwas connected with ITand IS to helpmanage more effectively, to enhance communication and to improve decision-making. As the technology matured, the focus moved from ‘day-to-day’ activitiesto a long-term strategic view of organizational processes. This involved adoptingtechnologies and systems in redesigning existing ways of working to ensure con-sistency, uniformity and direction. As a greater understanding of the enterprise de-veloped, managers were able to recognize new ways of exploiting technology,which consequently enabled the more effective utilization of information.

Technology and systems are essentially business tools. As such, the ITand IS di-mensions of enterprise tended to reflect underlying organizational developmentsand priorities. This is seen in two core areas from the drive for efficiency and theneed to differentiate for effectiveness within business processes. Recent trendshave emerged around knowledge management, customer relationship manage-ment, systems innovation, outsourcing, global communications, social networkingand managing complex adaptive systems. All of these approaches are aimed to-wards organizations gaining a competitive advantage or service delivery improve-ments through the adoption and implementation of systems and technology. Inthis respect, developments in IT and IS exploitation can be seen to be aligning,driving and sustaining the critical business strategy of the enterprise. Hence, thenotion, realization and implementation of SISMwas born.

Early research within the strategic management field, which informed SISM,initiated an external focus through the development of prescriptive tools, e.g.SWOT, PEST analysis, etc. (Andrews, 1971; Mintzberg, 1973) followed by a con-sideration of strategy at an industry level of analysis (Porter, 1980, 1985). Subse-quently, the 1990s were characterized by an emphasis upon an organization’sinternal structures and the emergence of the Resource-Based View (Barney, 1991)and Dynamic Capabilities (Teece et al., 1997). Perspectives that are more recenthave recognized that the strategic process involves the practice of management

xix

(Jarzabkowski, 2005) internal politics, organizational culture and managercognition (Mellahi and Sminia, 2009). Serious attention to SISM is howeverappropriately accredited and historically fuelled by Porter ’s competitive strategyframework (Porter, 1980, 1985). Although many core developments have emergedin recent years, relative to the strategic management field, Porter’s insights into anorganizations’ competitive agenda remain at the foundation of critical thinking(Furrer et al., 2008). Furthermore, SISM studies illustrate a significant role in the fu-ture direction of enterprises and their strategies. Consequently, the evolution ofthe strategic management field demonstrates a close encounter with the exploitationof systems and technology.

Clearly, a major development in recent years, leading to a change in the natureof business processes and a range of innovative applications, has been the WorldWide Web (WWW): most interestingly through ‘social’ networking technologies,such as Facebook, YouTube and Web2, etc. The internet is a powerful tool that canprovide opportunities for enhancing the competitive position of enterprises. Thiscan be achieved by building barriers against new entrants, changing the basis forcompetition, altering the balance of power in supplier relationships, retaining newcustomers, reducing switching costs, creating new products and services and man-aging resources and information.

The landscape of SISM represents a vision of the future that business enter-prises must have the ability to change rapidly, to be more agile, cost effective andresponsive to the needs of stakeholders, the market place and the environment.This book explores these areas of SISM, which have undergone a significant para-digm shift in recent years.

To aid navigation Figure 1 illustrates a mapping of the book content followedby a brief synopsis of each chapter.

SISM requires a multi-disciplinary approach to explore and exploit an organiza-tions IT and IS for competitive advantage and service delivery improvements.Contemporary enterprises are faced with distinct contradictions, which clearly re-late to a need for technical expertise and business competence within their dyn-amic domestic and global environments – this book considers how this may beachieved.

Figure 1

The landscape ofStrategic InformationSystemsManagement

IT/IS Professionalism, Ethics and Security (Ch 12)

Organizational Change, Cultureand Strategic IS/IT Led Change

Strategic IT/IS Leadershipand IT Governance

Strategic Knowledge Management

Global Issues in Information Management

Preface

Strategy

Knowledge

(Ch 11)

(Ch 9)

(Ch 8)

(Ch 1)

(Ch 5)

(Ch 7)

(Ch 10)IS/IT Benefits Management andRealization

Business Strategy for a Digital World

(Ch 4)Disruptive Technologies andApplications

Business Exploitation of Information andCommunication Technology Systems (Ch 2)

Business IT/IS Alignment

(Ch 3)Information Systems DevelopmentApproaches

Strategic IS/IM in Context (Ch 6)

Technology Systems

xx Preface

References

Andrews, K., (1971) The Concept of Corporate Strategy, Homewood, IL: Dow Jones-Irwin.Barney, J., (1991) Firm Resources and Sustainable Competitive Advantage, Journal of Management, Vol.

17, pp 99–120.Furrer, O., Thomas, H., and Goussevskaia, A., (2008) The Structure and Evolution of the Strategic Man-

agement Field: a content analysis of 26 years of strategic management research, International Journalof Management Reviews, Vol. 10, No. 1, pp 1–23.

Jarzabkowski, P., (2005) Strategy as Practice: an activity based approach, London: Sage.Mellahi, K. and Sminia, H., (2009) The Frontiers of Strategic Management Research, International Journal

of Management Reviews, Vol. 11, No. 1, p 3 (Special issue).Mintzberg, H., (1973) The Nature of Managerial Work, New York: Harper and Row.Porter, M.E., (1980) Competitive Strategy: techniques for analyzing industries and competitors, New York: The

Free Press.Porter, M.E., (1985) Competitive Advantage: creating and sustaining superior performance, New York: The

Free Press.Teece, D.J., Pisano, G. and Shuen, A., (1997) Dynamic Capabilities and Strategic Management, Strategic

Management Journal, Vol. 18, pp 509–533.

Chapter synopses

Chapter 1 - Business Strategy for the Digital World introduces business strategyin the digital economy. The discussion begins with an overview of the develop-ments in strategic management thinking since it was first recognized as a discip-line in the 1950s. This is followed by an introduction to key developments in thedigital economy including the transformational effect that the emergence of theinternet has had on business. The discussion continues by exploring strategic in-formation systems and e-business from two different theoretical perspectives.These are the Positioning Approach and the Resource-Based View of strategy. Thechapter includes the strategic implications of the development of the mobile wire-less internet into the business landscape.

Chapter 2 - Business Exploitation of Information and Communication Technol-ogy Systems seeks to unpack the area of how organizations can exploit informa-tion and communication-based systems (ICTs) for corporate goals using enterprisewide systems as an illustration. This chapter explores the growing significance ICTplays in contemporary organizations as they seek business agility via differing flex-ible forms of organizational structure and operations. This allows them to respondto the market for their products and services with greater reach and richness. Anumber of challenges associated with exploiting ICT, which range from both thetechnical to the imperative human elements of business and management, arenoted. Finally, the chapter concludes with some lessons learnt concerning how or-ganizations may enhance their exploitation efforts using enterprise-based system.

Chapter 3 - Information Systems Development Approaches outlines IS develop-ment as a ‘meeting’ of technology, organizations, and people issues. The chapterlooks first at the underlying concepts of systems development, the discipline ofthe life cycle of development, and the techniques and tools required. It then takesan historical perspective of the various eras of systems development. This is fol-lowed with a focus on one well-used approach; the Dynamic Systems Develop-ment Method (DSDM). Finally, the London Ambulance IS failure case study is

Preface xxi

outlined together with its successful transformation. The case is excellent forrevealing the IS development issues and the importance of human, social andorganizational aspects.

Chapter 4 - Disruptive Technologies and Applications identifies, illustrates andassesses existing and emerging disruptive technologies and applications while fo-cusing on their strategic implications for work, play, communication, entertain-ment and learning. Emerging disruptive technologies are explored which offerfurther opportunities and challenges. In particular, there has been a new wave ofweb 2.0 technologies, e.g. social networking, music and ring tone downloading,blogs, wikis, instant messaging, online chat and forums, which facilitate inter-action, socialization, creativity, information sharing, and collaboration amongstusers. The chapter also considers the uptake in the use of MMORPGs and virtual/3D worlds for business, social and economic activity.

Chapter 5 - Business IT/IS Alignment considers Business Information Technol-ogy and Information Systems (BIT/IS) Alignment shaped and influenced by practi-tioners from consultancy and professional services. The chapter reviews the oftenmisunderstood concept of alignment and explores the theoretical perspectives,evolution and contemporary application of IT/IS alignment for competitive advan-tage and business value. This chapter explains the criticality of business IT/IS align-ment for business transformation programmes and ongoing business operations.It also provides a synthesis of major tools and techniques, both theoretical andpractically originated, that are used when seeking effective and efficient IT/IS-based solutions that support corporate objectives.

Chapter 6 - Strategic IS/IM in Context suggests that most of what is written re-garding information systems (IS) and information management (IM) is frequentlyexplicitly, or implicitly, grounded in the experiences and challenges facing large-scale private sector organizations. This chapter examines IS/IM issues through twoorganizational contexts very different from this norm: public sector organizationsand small and medium-sized enterprises (SMEs). The nature of what constitutesthe public sector is explored, along with the differences between public and pri-vate sectors. The potential of information and communications technologies totransform the delivery of public sector services has led to the growth of the globalphenomenon termed frequently ‘e-government’ or ‘digital government’.

Chapter 7 - Global Issues in Information Management charts the evolutionarychanges that are currently affecting countries around the world. For example,the global rise of virtual words and social collaboration. This allows communica-tion and collaboration between members of different nations, cultures and reli-gions, supported by global web-based language, services and standards. Thechapter explores several by-products of global engagement, namely the rise ofdigital democracy and the wider implications of electronic government. Regard-less of the talk surrounding problems for some in accessing the World Wide Webthere is an increasing awareness that having access is no longer enough and thatpeople need to be developed with regards to IT and information literacy in orderfor users to maximize the potential of these technologies. The chapter then looksat the continuing issue of IT/IS outsourcing, commercial-based web languagesand standards, service orientated architectures and the growing and significant‘Greening of IT’.

xxii Preface

Chapter 8 - Strategic Knowledge Management discusses knowledge (creation,transfer, retention and utilization) learning and intellectual capital as core conceptsand key sources of sustainable competitive advantage for all forms of organiza-tions and enterprises. The use of IT/IS and ICT runs throughout this chapter as athread which explores knowledge management applications and how both spe-cific and generic enabling technologies may be used to support the goals of stra-tegic management. The chapter then suggests various knowledge managementstrategies and provides a case study to illustrate many of the issues and benefitsfor strategic knowledge management enabled by the utilization of appropriateand relevant technologies.

Chapter 9 - Organizational Change, Culture and Strategic IS/IT Led Change ar-gues that faced with increasingly complex and rapidly evolving operating envir-onments, organizations are more than ever dependent for success on theirpeople’s ability and willingness to make change happen. It is argued that changeleaders must persuade others through compelling communications, participationand leading by example to make change happen. Success depends upon an under-standing of human behaviour and organizational culture, particularly drivingforces such as values, norms and cultural artefacts (stories, symbols, structures,control systems, rituals and routines). Change agents are then able to identify andeffect changes in others’ behaviour and actions necessary to realize the benefitsfrom complementary structures, processes, systems and assets to achieve new stra-tegic objectives. Further, such actions also enable the creation of environmentsconducive to organizational learning and knowledge creation, which play keyroles in an organization’s ability to change.

Chapter 10 - IS/IT Benefits Management and Realization considers IS/IT BenefitsManagement and Realization where resources are always limited in every organ-ization. Prosperous organizations struggle for additional employees and manage-ment attention. Less privileged organizations will need to focus on their spendingand revenues. A solid financial evaluation of IS/IT is, therefore, prerequisite forany organization in any situation. The chapter describes Benefits Managementfrom various perspectives. Benefits are compared to cost and their organizationalcontext is elaborated. Various techniques are described to manage cost and bene-fits: (1) Active Benefits Realization (ABR), (2) The Process approach to BenefitsManagement, (3) Balanced Scorecard, (4) Val-IT (ISACA) and (5) Benefit Realiza-tion Approach. In addition, governance mechanisms are of uttermost importancein the area of Benefits Management.

Chapter 11 - Strategic IT/IS Leadership and IT Governance considers conceptsand practices of leadership and compares IT leadership with more generic stra-tegic concepts. It introduces the idea that leading IT, with regards to innovationand disruptive technologies, is a key function of a modern Chief InformationOfficer. The chapter then discusses the current role of IT leadership within thecorporate world with a detailed discussion of IT governance by exploring vari-ous frameworks, approaches and methods. The chapter argues that it is possibleto envision the purpose of IT governance, the potential benefits it will bring,and the characteristics of a fully developed governance framework. This is illus-trated by a case study indicating key lessons learnt that relate to the areas ofleadership, innovation and governance.

Preface xxiii

Chapter 12 - IT/IS Professionalism, Ethics and Security argues that the notion ofIT professionalism is best understood by analysing the wider concept of profession-alism itself. This includes the significance professionalism has within IT for the indi-vidual, society and the institutions which arise to govern the profession. Thechapter considers the extent and challenges identified as the IT profession has ma-tured. It also explores security and legal issues by highlighting common threats inrelation to computer-based controls, network security and non-technical countermeasures. Real world examples are provided in relation to examples of securitybreaches in IS/IT. The final section of the chapter explores ethical aspects of IS/IT.

Kevin Grant, Ray Hackney and David EdgarGlasgow and London

September 2009

xxiv Preface

Acknowledgements

The editors are indebted to all the academic and practitioner colleagues whohave given so much of their time and effort in developing the chapters that

form this book. We would also like to thank Merlin Gardner, Deloitte MCS Limitedand Tom Rennie, Publisher, Cengage Learning (EMEA) for their input and contin-ual contributions throughout the journey, which surrounds this book.

A special debt of gratitude goes to Professor Ray Land, University of Strath-clyde, for his professional advice relating his pedagogic concept of ‘troublesomeknowledge’ (Meyer and Land, 2005) to enhance the reader’s understanding ofStrategic Information Systems Management.

References

Meyer, J.H.F. and Land, R., (2005) Threshold concepts and troublesome knowledge (2): epistemologicalconsiderations and a conceptual framework for teaching and learning, Higher Education, Vol. 49,No. 3, pp 373–388.

The Publisher would also like to thank the following reviewers for providing feed-back on the original proposal:

l Christopher Bull,Manchester Metropolitan University

l Amany Elbanna, Loughborough University

l Ritchie Macefield, Staffordshire University

l Shadi A. Razak, Roehampton University

l AlexWatt, Liverpool John Moores University

l Christine Welch,University of Portsmouth

xxv

Contributors

PrefaceThe Landscape of Strategic InformationSystems Management

Kevin GrantGlasgow Caledonian University, UKRay HackneyBrunel University, UKDavid EdgarGlasgow Caledonian University, UK

Chapter 1Business Strategy for the Digital World Colin Combe

Glasgow Caledonian University, UKLaszlo NemethDex, Hungary

Chapter 2Business Exploitation of Information andCommunication Technology Systems

Sue NewellBentley University, USAUniversity of Warwick, UKRobert GalliersBentley University, USALondon School of Economics, UKBrunel University, UK

Chapter 3Information Systems DevelopmentApproaches

David AvisonESSC, Business School, FranceGuy FitzgeraldBrunel University, UK

Chapter 4Disruptive Technologies andApplications

Alexis BarlowGlasgow Caledonian University, UKFeng LiUniversity of Newcastle, UK

Chapter 5Business IT/IS Alignment Merlin Gardner

Deloitte Touche Tohmatsu, UKKevin GrantGlasgow Caledonian University, UK

xxvii

Chapter 6Strategic IS/IM in Context Peter Duncan

Glasgow Caledonian University, UKAnneWigginsUNCTAD, SwitzerlandJohnWrightNHS Ayrshire and Arran, UKDavid DuncanWolters Kluwer, UK

Chapter 7Global Issues in InformationManagement

Stuart Fitz-GeraldKingston University, UK

Chapter 8Strategic Knowledge Management Vivien Reid

Glasgow Caledonian University, UKPeter BalohLjubljana University, SloveniaUniversity of Washington, USAKevin DesouzaUniversity of Washington, USA

Chapter 9Organizational Change, Culture andStrategic IS/IT Led Change

Arnoud FrankenCranfield University, UK

Chapter 10IS/IT Benefits Management andRealization

Egon BerghoutUniversity of Groningen, the NetherlandsPhilip PowellExecutive Dean of the School of Business,Economics and InformaticsBirkbeck, University of London, UK and theUniversity of Groningen, the Netherlands

Chapter 11Strategic IT/IS Leadership and ITGovernance

Gurpreet DhillonVirginia Commonwealth University, USADavid CossVirginia Commonwealth University, USADavid PatonDeloitte Touche Tohmatsu, UK

Chapter 12IT/IS Professionalism, Ethics andSecurity

Thomas FullerDeloitte Touche Tohmatsu, UKThomas ConnellyUniversity of the West of Scotland, UKMark StansfieldUniversity of the West of Scotland, UK

xxviii Contributors

About the Authors

Professor David Avison is the Distinguished Professor of Information Systems atESSEC Business School, near Paris, France. He was Professor at the School of Man-agement at Southampton University and has also held posts at Brunel and AstonUniversities in England, and the University of Technology Sydney and Universityof New South Wales in Australia. He is President of the Association of InformationSystems (AIS). He is joint editor of Blackwell Science’s Information Systems Journalnow in its 19th volume, and rated in the AIS basket of six research journals. So far,25 books are to his credit including the fourth edition of the well-used text Informa-tion Systems Development: Methodologies, Techniques and Tools (jointly authored withGuy Fitzgerald). He has published a large number of research papers in learnedjournals, edited texts and conference papers. He was Chair of the International Fed-eration of Information Processing (IFIP) 8.2 group on the impact of IS/ITon organiza-tions and society and was also vice chair of IFIP technical committee 8. He was pastPresident of the UK Academy for Information Systems and also chair of the UK Headsand Professors of IS and is presently member of the IS Senior Scholars Forum. He wasjoint programme chair of the International Conference in Information Systems (ICIS)in Las Vegas (previously also research programme stream chair at ICIS Atlanta),joint programme chair of IFIP TC8 conferences at Santiago Chile and Milan, Italy,programme chair of the IFIPWG8.2 conference in Amsterdam and general chair ofits conference in Barcelona. He also acts as consultant and has most recentlyworked with two leading manufacturers developing their IT/IS strategies. Heresearches in the area of information systems development and more generally,on information systems in their natural organizational setting, in particular usingaction research, though he has also used a number of other qualitative researchapproaches.

Dr Alexis Barlow is a lecturer at Caledonian Business School, Glasgow Caledo-nian University. Her teaching and research interests are in the field of informa-tion systems, e-business, using IS to exploit strategic value and reconfiguringsupply chains. Alexis is the Programme Director of a new contemporary under-graduate programme entitled BA (Hons) Management, Technology and Enter-prise. She is currently involved in teaching on a range of programmes includinga BA (Hons) Business Information Management, MSc in Management of Infor-mation Systems and the Master of Business Administration. Alexis is a memberof the Higher Education Academy, the British Academy of Management ande-business research network. She has recent publications in journals such as theInternational Journal of Business Science and Applied Management, International Jour-nal of Information Technology and Management, Electronic Commerce Research and Ap-plications and the International Journal of Retail and Distribution Management. She is

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regularly involved in the reviewing for journal papers, conferences and books.She has served as the track chair for the e-business and e-government track atthe British Academy of Management (BAM) conference and has been involvedin jointly organizing e-business and e-government Special Interest Group work-shops. Recently, she has been involved in a recently completed KnowledgeTransfer Partnership based on the implementation of a practice management sys-tem for a patent agency.

Professor Egon Berghout is Chair in Information Systems at the University ofGroningen, the Netherlands. He specializes in the creation of sustainable strategicadvantage though ITand is the Director of CITER – the Centre of IT Economics Re-search. At the University of Groningen, he coordinates the Business and ICT spe-cialization within the Master of Science in Business Administration and chairs theBoard of Examiners. Furthermore, he is a board level consultant to multinationalsand ministries on topics, such as (IT) strategy, IT benefits improvement, efficiencyimprovement, governance and sourcing, as associate partner of the M & I/Partnersconsultancy group (http://www.mxi.nl/), in the Netherlands. Professor Berghouthas been given the alidade of being one of the most prominent IT managementconsultants in the Netherlands.

Dr Peter Baloh is an assistant lecturer and a research fellow at Information Man-agement department of Faculty of Economics Ljubljana University, Slovenia, theonly EQUIS accredited school in South-Eastern Europe. He is active in the areas ofIS, Management of Technology and Innovation, Project Management and Know-ledge Management, which are considered through the lens of successful imple-mentation in various organizational settings. He has authored over 40 articles,which were presented at international conferences, featured and/or published inpractitioner and academic journals. He held a visiting professor position at one ofthe top three national Korean universities – Kyungpook National University,where he gave a course on Knowledge Management and Knowledge Manage-ment Systems in 2008. In addition, he has founded and has managed a niche con-sulting venture ‘Catch the knowledge’, advising companies in how to adopt newways of working when achieving and securing their competitive advantages. Itsareas of expertise include business process renovations, setting up project manage-ment processes in companies, injecting knowledge management in existing busi-ness processes, revival and set-up of innovation processes, and leading big-scaleorganization-wide deployments of new technologies.

Dr Colin Combe is a lecturer in strategic management at Glasgow Caledonian Uni-versity. He is an economics graduate and holds a PhD for research into multimediacorporate strategy. He has also completed an LL.M in IT and TelecommunicationsLaw, specializing in intellectual property rights. His research interests includee-business, e-government, the convergence of technologies and intellectual assetsmanagement. His research work has been published in academic journals and pre-sented to international conferences. He is an associate of DexEurope, a consultancyorganization that brings together industry specialists and academics to providetailored consultancy services and project management to development organiza-tions in Eastern Europe. Colin has also undertaken consultancy work for a WorldBank programme investigating administrative capacity in accession countries tothe European Union. His contribution was a report into e-government service

xxx About the Authors

provision in Estonia and Poland, the results of which were presented to the WorldBank conference in Bratislava in 2006. Colin has also been active in designing train-ing programmes for executive clients including intellectual asset management forregional administrations in Hungary and Bulgaria; strategic management for small-scale family run firms, and the strategic use of intellectual property for Currie andBrown, an international firm specializing in surveying and project management.

David L. Coss is a Doctorial Candidate and Research Assistant in the School ofBusiness at Virginia Commonwealth University within the department of Informa-tion Systems. He holds an MBA of University of Nevada, Las Vegas. His researchinterests include management of information privacy, technology innovation, andentrepreneurial aspects of information technology. Prior to his academic pursuit heheld consulting positions with Arthur Andersen, Deloitte & Touche, and Ernst andYoung with a speciality in Gaming Operations and Compliance.

Professor Thomas Connolly is a Professor and Chair of the ICT in EducationResearch Group at the University of the West of Scotland and is Director of theScottish Centre for Enabling Technologies and Director for the Centre of Excel-lence in Games-based Learning. His specialisms are online learning, games-basedlearning and database systems. He has published papers in a number of inter-national journals as well as authoring the highly acclaimed booksDatabase Systems:A Practical Approach to Design, Implementation, and Management, Database Solutionsand Business Database Systems, all published by Addison Wesley Longman. Profes-sor Connolly also serves on the editorial boards of many international journals, aswell as managing several large-scale externally funded research projects.

Professor Kevin C. Desouza is on the faculty of the Information School at theUniversity of Washington. He currently serves as the Director of the Institute forInnovation in Information Management (I3M) and is an affiliate faculty member ofthe Center for American Politics and Public Policy, both housed at the Universityof Washington. He founded the Institute for National Security Education and Re-search, an inter-disciplinary, university-wide initiative, in August 2006 and servedas its Director until February 2008. He has held visiting positions at the Centre forInternational Studies at the London School of Economics and Political Science, theUniversity of the Witwatersrand in South Africa, and the Accenture Institute forHigh Business Performance in Cambridge, Massachusetts (USA), among others. Inthe private sector, he founded the Engaged Enterprise and its think-tank, the Insti-tute for Engaged Business Research. Dr Desouza has seven books to his name. Inaddition, he has published articles in prestigious practitioner and academic jour-nals. Dr Desouza has advised major international corporations and governmentorganizations on strategic management issues ranging from management of infor-mation systems, to knowledge management, competitive intelligence, govern-ment intelligence operations, and crisis management. He is frequently an invitedspeaker on a number of cutting-edge business and technology topics for nationaland international, industry, and academic audiences.

Professor Gurpreet Dhillon is Professor of Information Systems and Director ofInformation Technology Leadership Institute at the School of Business, VirginiaCommonwealth University, Richmond, USA. He also holds an affiliate appoint-ment at Instituto Superior de Economia e Gestao at Universidade Tecnica deLisboa, Portugal. Over the years he has also held positions at University of

About the Authors xxxi

Nevada Las Vegas (USA), Cranfield University School of Management (UK),City University of Hong Kong (PRC). Professor Dhillon is a graduate of theLondon School of Economics and Political Science, UK where he studied organ-izations and information. His research led him to explore aspects of informationsecurity, privacy and assurance. Professor Dhillon has authored over 100 researcharticles that have been published in various journals. He is also an author ofsix books, including Principles of Information Systems Security: Text and Cases(Wiley, 2007). He is also the Editor-in-Chief of the Journal of Information SystemSecurity. Professor Dhillon consults regularly with the industry and govern-ment and has successfully completed assignments in the US, UK, Portugaland India.

David Duncan is currently Chief Technology Officer (CTO) of Wolters Kluwer UK,an information company supporting professionals by providing consulting ser-vices, workflow software and publishing solutions. David is particularly interestedin finding better ways to support professionals in their day-to-day work and deci-sion-making, whether through improvements in what is already ’traditional’ web-based information publishing or the development of newer software tools. He isan experienced technology leader with more than 20 years’ experience as a practi-tioner across a range of IT disciplines. Before joining Wolters Kluwer UK, Davidwas Deputy CTO and Information Architect at Wolters Kluwer Health havingpreviously held senior IT management positions in a number of companies andcountries.

Dr Peter Duncan has worked as an academic at Glasgow Caledonian Universityinvolved in teaching, research supervision and research. He has taught a range ofundergraduate, postgraduate (including MBA and professional doctorate) mod-ules in the areas of strategy, information systems, intellectual capital managementand research methods. His main research areas relate to the impact of informationsystems on professional services firms (particularly the legal services sector); andthe management of intellectual capital. Peter has been involved in a number ofknowledge transfer activities and was holder of a Glasgow Caledonian UniversityKnowledge Transfer Grant for a project relating to developing the understandingof business information management by solicitors in Scotland. He was part of theknowledge base (supervisory) team for a Knowledge Transfer Partnership (KTP)between Glasgow Caledonian University and Kennedys Patent Ltd. The KTP hasbeen nominated for the Best Partnership award at the KTPAwards 2009. Peter haspublished in a number of national and international journals relating to business,information systems and legal practice. He has acted as reviewer and guest editorfor journals including the European Journal of Information Systems, International Jour-nal of Information Technology and Management, and the Journal of Information, Law andTechnology; and acted as reviewer for conferences such as AMCIS, BAM, ICIS andUKAIS. Before joining Glasgow Caledonian University, Peter worked for the Brit-ish Antarctic Survey.

Professor David Edgar is Professor of Strategy and Business Transformation. Hismain areas of research and teaching are in the field of strategic management, spe-cifically dynamic capabilities, business uncertainty and complexity, and innov-ation. He has worked with a range of organizations on business transformationprojects in particular relating to e-business strategies and knowledge or talent

xxxii About the Authors

management. He has a wide range of academic experience from programmedevelopment to international collaboration. David’s consultancy experience is inthe area of soft systems methodology, organizational analysis, managing innov-ation, business processes analysis and design, scenario planning and strategicplanning/reviews. He has worked with a wide range of private and public sectororganizations including NTL, Telewest, NHS, Local Councils, Aristo hotels, andIBM. This consultancy expertise is supported by and complemented by ProfessorEdgar’s research interests. In recent years, these have started to be contextualizedaround the strategic development of organizations in complex and transitional en-vironments and have involved working with colleagues in a range of countriesand industry sectors. To date, David has over 43 publications in national and inter-national journals in the areas of hospitality and tourism, strategy, IT/IS and educa-tion. He has also supervised to completion 14 PhD students.

Professor Guy Fitzgerald is Professor of Information Systems at Brunel Universityin the Department of Information Systems and Computing. He was, until recently,Head of Department, and prior to that Director of Research and the PhD Pro-gramme. Prior to Brunel he was the Cable and Wireless Professor of BusinessInformation Systems at Birkbeck College, University of London, and before thathe was at Templeton College, Oxford University. As well as being an academic, hehas also worked in the computer industry with companies such as British Telecom,Mitsubishi and CACI Inc, International. His research interests are concerned withthe effective management and development of information systems and he haspublished widely in these areas. He is well known for his work in relation to devel-opment techniques and methodologies and is author, with David Avison, of amajor text in this area entitled Information Systems Development: Methodologies, Tech-niques and Tools, now in its fourth edition. He is also known for his research in theareas of IS strategy and alignment, outsourcing, and executive information sys-tems. His most recent research is concerned with the development of flexible infor-mation systems to enhance organizational agility. He is founder and co-editor ofthe Information Systems Journal (ISJ), an international journal, fromWiley-Blackwell.He has been a member of many international programme committees, includingthe International Conference on Information Systems (ICIS) and the EuropeanConference on Information Systems (ECIS). He is currently the Vice-President ofPublications for AIS (Association for Information Systems).

Stuart Fitz-Gerald is Principal Lecturer in Management Science and BusinessComputing at Kingston Business School, Kingston University. Stuart holds anHonours Degree in Economics from Hull University where he also received theGrove Prize, he also has an MA from Warwick University and is a Member ofthe British Computer Society (MBCS) and the OR Society. Stuart has developedand managed numerous undergraduate and postgraduate programmes in Busi-ness Information Technology and Business Information Management. He hasheld external examiner positions in business IS and business IT at various UKand Scottish Universities. He has been a specialist reviewer in business comput-ing and business management for the QAA. Stuart has been a visiting lecturermanagerial economics, management science and business computing both inEurope and in India. In India, he has worked extensively with the British Coun-cil as a Business IT specialist delivering many lectures and seminars. He also hassignificant experience in the development of collaborative overseas programmes,

About the Authors xxxiii

notably in Greece, Singapore and India. He has written extensively in the field ofManagement Science and Business ITand has over 30 publications in the field. Heis currently Course Director of both the MSc in Business Information Technologyand the MSc in IT for Business Management. He is also the liaison manager forIndian collaborations at Kingston University and is Reviews Editor of the Inter-national Journal of Information Management. His current areas of teaching interest arein managerial economics, information resource management and business comput-ing systems. His research interest are varied, with particular focus at the momenton the digital economy’s role in Indian economic development, the nexus betweenIS research and IS teaching, information management and risk reduction, high per-formance websites and document mark-up. Stuart Fitz-Gerald is a committed userof LaTeX document preparation system and promotes its use whenever he is able.Before entering employment in the academic world, he worked in the governmentcomputing service and HM Customs and Excise.

Dr Arnoud Franken is a Senior Research Fellow at Cranfield School of Manage-ment in the United Kingdom. Having appreciated early in his career, as an R&Dengineer in the energy and aerospace industries, that business success in a chan-ging world cannot be achieved solely through advanced technology, he expandedhis research, teaching and consultancy interests into the areas of strategy, businesschange, portfolio and benefits management. He has worked with a wide range oflarge organizations, including AstraZeneca, BAA, GlaxoSmithKline, Microsoft, theUK Defence Academy, Rolls-Royce, and currently the Royal Marines. Arnoud hasauthored various book chapters on business change and British aviation, and pub-lished his work in leading journals such as California Management Review. Prior tojoining Cranfield School of Management, Arnoud was the Assistant Director andco-founder of the European Virtual Institute for Gas Turbine Technology (EVI-GTI), a non-profit organization facilitating collaborative instrumentation researchand development between major gas turbine and aero-engine manufacturers, spe-cialist supply chain companies and university research groups across Europe. Heholds a Masters degree in mechanical engineering from Delft University of Tech-nology in the Netherlands, an Engineering Doctorate in aerospace engineeringfrom Cranfield University in the United Kingdom, and he is a member of the RoyalAeronautical Society and the Royal United Services Institute.

Dr Thomas Fuller is a leading expert in ITskills and professionalism at Deloitte. Tomjoined Deloitte in 2005, focusing primarily on the CIO agenda and IT effectivenessissues, after spending several years as a systems integration consultant with Accen-ture, where he undertook a number of technical and business facing roles in the util-ities sector. Prior to his consultancy career, he undertook a PhD funded by the NHSin lay and professional perspectives within the medical profession, specifically look-ing from a sociological perspective at the relationship between institutions, organiza-tions and professionalism. He is now applying these learnings to the IT profession.Tom works predominantly with public sector organizations to improve the role thatITcan play in delivering public services, identifying key areas for improvement andsupporting the implementation of new organization designs, processes and controls.Tom has supported a number of professional IT bodies to create a new IT qualifica-tion, and he is now working with several organizations to apply his unique know-ledge of IT professionalism to create more effective IT organizations. This includesskills assessments, benchmarking, CPD schemes and recruitment.

xxxiv About the Authors

Professor Robert Galliers is Provost and Vice President for Academic Affairs atBentley University, USA, since July 2002. Previously Professor of Information Sys-tems and Research Director in the Department of Information Systems at the Lon-don School of Economics, he retains his connection with the London School ofEconomics, UK. He is also a Visiting Professor at the Australian School of Business,University of New South Wales, and the Brunel Business School, Brunel University,UK. Before joining LSE, Galliers served as Lucas Professor of Business ManagementSystems and Dean of Warwick Business School in the United Kingdom, and earlieras Foundation Professor and Head of the School of Information Systems at CurtinUniversity in Australia. Galliers holds an AB (honors) in Economics from HarvardUniversity, as well as a Master’s with distinction in Management Systems fromLancaster University, a PhD in Information Systems from the London School ofEconomics and an Honorary Doctor of Science degree awarded by the TurkuSchool of Economics and Business Administration in Finland. As a leader in thefield of management information systems, Galliers has published widely in manyof the leading international journals on information systems and has authored orco-authored a number of books, including Exploring Information Systems ResearchApproaches: Readings and Reflections (Routledge, 2007), the fourth edition of the bestseller, Strategic Information Management (Butterworth-Heinemann, 2009), RethinkingManagement Information Systems (Oxford University Press, 1999) and IT and Organ-izational Transformation (Wiley, 1998). He is also the editor-in-chief of the Journal ofStrategic Information Systems, and a Fellow of the British Computer Society (FBCS),the Association for Information Systems (FAIS) and the Royal Society of Arts(FRSA). Galliers’s research is transdisciplinary in nature, focusing primarily on ITand business innovation/transformation and the management of change; informa-tion systems strategy; strategy alignment; knowledge management, and intra-and extra-organizational impacts of the internet.

Dr Kevin Grant has worked as an academic, a university teacher, university-basedconsultant and research supervisor, since 1992, at Napier University and GlasgowCaledonian University in a range of under and postgraduate modules in the areaof information systems/management, research and consultancy skills and prac-tices. Kevin has also extensive managerial and project management experienceand curricula design and management experiences, particularly as Head of De-partment and a Head of School/Dean (Business) at Bell College of Technology(now part of the University of the West of Scotland), before joining Glasgow Cale-donian University in 2001. His main teaching areas are in the areas of strategy,strategic IT/IS alignment and systems thinking/practice, research methods andconsultancy practices. His main research areas are in IT evaluation, IT/IS align-ment, strategy and innovation and learning and teaching in higher education.Prior to joining academia Kevin worked in the public sector. Kevin has over45 academic publications, many of which appear in national and international fo-cused education and IT/IS journals. Kevin has initiated or been part of severallarge-scale academic consultancy projects, with a range of private, public andSME clients, such as the Scottish National Health Service (various regional healthboards and education services (NES), the Royal Bank of Scotland, ScottishWidows, NTL/Telewest, Weslo Housing Association, Bell Heath, and the YoungPresidents’ Organization. Finally, Kevin holds an educational doctorate in thenexus between teaching, research, scholarship and consultancy awarded by the

About the Authors xxxv

University of Edinburgh in 2007 and holds a higher education-based teachingqualification and is a Fellow of the British Computer Society and Chartered ITProfessional and a Fellow of the Higher Education Academy.

Merlin Gardner is a Director in Technology Integration consultancy at Deloitte. Inhis early career, he worked for IBM and Sema Group in software developmentroles. In 1988, he joined Price Waterhouse where he qualified as a Chartered Ac-countant and focused on providing audit, financial advisory and ITassurance ser-vices to a variety of clients. He joined Deloitte in 1992 to focus on consultancywhere he continues to work today. In the past 16 years at Deloitte, Merlin hasworked for a diverse range of consultancy clients, from small owner managedbusinesses to a major government department. These clients have spanned manysectors and have included leading private sector organizations such as Aviva,Marsh, Cendant, Hilton Group and Specsavers, as well educational and academicinstitutions such as HEFCE, education colleges, the Wellcome Trust and the Re-search Council. Merlin has worked with RCUK andmany of the Research Councilson a variety of projects, many relating to grant administration strategy, servicesand systems. For the past two years, he has been supporting the procurement andimplementation of a £600 million government technology programme, working inthe implementation workstream. He also leads Deloitte’s IT Strategy propositionin the UK and was responsible for development of an IT Strategy methodologythat has been adopted globally and for which he has delivered training through-out Europe and the USA.

Professor Ray Hackney is Chair in Business Systems and Director of the DoctoralProgramme within the Business School at Brunel University. Ray has served onthe Board of the United Kingdom Academy of Information Systems, acted as anAssociate Editor and reviewer for a number of national and international journalsand is case editor for International Journal of Information Management. Ray has beenthe President of IRMA (2002) and is now an Executive Member of the InformationInstitute www.information-institute.org. Ray’s research interests are in strategicknowledge management; business and government process design and organiza-tional change and transformation. Finally, Ray has authored and co-authored over140 journal papers in the field of information systems may of which feature inprestigious IS and business journals.

Professor Feng Li is Chair of E-Business Development at Newcastle UniversityBusiness School, and his research has focused on using information and communi-cations technologies to facilitate the development of new strategies, businessmodels, and organizational designs. He has worked closely with organizations inbanking, telecommunications, car manufacturing, retailing, electronics, the creativeindustries and the public sector through research, consultancy and executive devel-opment. He has led and participated in a series of projects funded by the EU, ESRC,the RDA and the private sector. As the Director of Engagement for the BusinessSchool and Newcastle Science City, Feng manages the interface between the Busi-ness School and the four Science City science themes and industry, coordinates theactivities of four Professors of Practice based in the Business School and leads re-search on science-based businesses. Feng was a Council Member of the British Acad-emy of Management (BAM) and Chair of the BAM E-Business and E-GovernmentSpecial Interest Group. He has also served as BAM track chair for e-business and

xxxvi About the Authors

e-government since 2003. He has served as a guest editor and is on the editorialboards of several refereed international journals. His research on internet bankingstrategies and business models and on the evolving telecommunications valuenetworks and pricing models have been reported extensively by the media. Hisbook,What is e-Business? How the Internet Transforms Organizations, was published byBlackwell (Oxford) in 2007.

Professor Sue Newell is Cammarata Professor of Management at Bentley Univer-sity, USA and Professor of Information Management, at Warwick Business School,Warwick University, UK. Research by Sue Newell focuses on innovation, specific-ally, on understanding how knowledge is transferred and innovation fosteredwithin and across organizations. Much of her work has taken place at ikon, a re-search unit for innovation, knowledge and organizational networking that she co-founded at the University of Warwick in the UK. In addition, Professor Newellpursues research in the design, implementation and use of IT; ethics and social re-sponsibility issues, including equal opportunity; and the evaluation of manage-ment development initiatives. Her corporate consulting experience includesengagements in industries from health care to pharmaceuticals to manufacturing.Professor Newell has written on knowledge management and the evolving work-place in two books,Managing Knowledge Work and Creating the Healthy Organization:Well-being, Diversity and Ethics at Work. Other credits include more than 55 articleswritten for journals such as Organization Studies, Human Relations, European Journalof Information Systems, Journal of Management Studies, British Journal of Management,Personnel Review, Communications of the CACM and Journal of Strategic InformationSystems. Professor Newell is on the faculty of the Information Management atWarwick Business School, Warwick University, UK and holds a PhD from CardiffUniversity in Wales.

Laszlo Nemeth is the manager of DexHungary, a subsidiary of DexEurope, whichspecializes in project management in Eastern Europe. Laszlo has held numerouspositions within the Hungarian economic development sector including leader-ship of EU projects and programme management of development schemes at min-isterial and regional level. He has been an advisor to the Hungarian governmentfor over twenty years specializing in regional development issues and partner-ships. Key post held includes the Director of the Hungarian Development Founda-tion and Departmental Manager of VOSZ, Hungary’s small business developmentagency. As manager of DexHungary, he is involved in coordinating projects andtraining programmes for SMEs in Hungary.

David Paton is a Director in Technology Integration consultancy at Deloitte. Ori-ginally qualifying as a Chartered Management Accountant in 1987, he undertook anumber of industry roles that focused on financial analysis, systems and manage-ment accounting services before moving into a career in information technology.During his early IT career, David focused on the delivery of multi-country enter-prise resource planning projects, the approach to the ongoing support and devel-opment of these business systems, and ultimately into the leadership of the ITfunction. In performing these early IT roles, David has worked and lived in theUK, Germany and America, giving him an insight into the differing cultural as-pects of change that IT projects can facilitate. David joined Deloitte in 2004 and hasbeen involved in projects that cross various stages of the IT development life cycle,

About the Authors xxxvii

both in the private and public sector. For the last three years, David has workedwith UK central government departments in the delivery of large-scale transform-ational outsourcing and software delivery programmes.

Professor Philip Powell is Executive Dean of the School of Business, Economicsand Informatics at Birkbeck, University of London. Prior to this, Professor Powellwas Professor of Information Management at the University of Bath, having com-pleted two terms as deputy dean of the business school. Formerly, he was Profes-sor of Information Systems, University of London and Director of the InformationSystems Research Unit at Warwick Business School. He also holds an honorarychair in operational information systems at the University of Groningen, Nether-lands. Prior to becoming an academic, he worked in insurance, accounting andcomputing. He is the author of seven books on information systems and financialmodelling including Management Accounting: A Model Building Approach, Informa-tion Systems: A Management Perspective and Developing Decision Support Systems forHealth Care Management. He has published numerous book chapters and his workhas appeared in over 90 international journals and over 140 conferences. He hasbeen Managing Editor of the Information Systems Journal for more than a decade.He is also associate editor for a number of journals including the IRMJ and on anumber of other editorial boards. He is a past president of the UKAcademy for In-formation Systems and has served on a bodies such as the Alliance for IS Skills. Heis a member of the British Computer Society and sits on their strategic educationforum panel and the management qualifications working group. He is a fellow ofthe higher education academy.

Vivien Reid is Acting Head of the Division of Strategy, Innovation and Enterprise,Caledonian Business School, Glasgow Caledonian University. Currently she is re-sponsible for the academic development, direction and management of 25 staffand has a cross-school function for strategic planning. Her current research is inthe areas of intellectual capital management and knowledge management, par-ticularly in the public sector. She has several national and international journalpublications in this area as well several book chapters. Vivien has established closelinks with local private and public sector organizations and has been part of ateam-providing consultancy in knowledge management to large organizations,such as Glasgow City Council and IBM. She is often invited to give presentationsto local business people and to supervise internal and external PhD students in thearea of knowledge management. Internationally, she has developed and deliveredacademic programmes in Kuwait, Malaysia and Oman.

Dr Mark Stansfield is a Senior Lecturer in the School of Computing at the Univer-sity of the West of Scotland (UWS). He has a PhD in Information Systems whichcentred on the use of systems thinking within the field of knowledge elicitation.Mark has written and co-written more than 70 refereed papers in areas relating tosystems thinking, information systems, e-learning, games-based e-learning ande-business. Journals in which papers have been published include the EuropeanJournal of Information Systems, Systems Practice and Action Research, the Journal of Fur-ther and Higher Education and Computers and Education. Mark has also won out-standing paper awards at international conferences relating to work on e-learning,games-based learning and virtual campuses. He is Project Coordinator and Princi-pal Investigator of the European Commission co-financed project ‘Promoting Best

xxxviii About the Authors

Practice in Virtual Campuses (PBP-VC)’. Mark is also an Editor of the Interdisciplin-ary Journal of E-Learning and Learning Objects, as well as serving on the editorialboards of several international journals that include the International Journal ofInformation Management, Journal of Information Systems Education, ALT-J and theJournal of IT Education. Mark was appointed Member of the International Associ-ation of Science and Technology for Development (IASTED) Technical Committeeon Education for the term 2005–08, and is a Fellow of the Higher EducationAcademy in the UK. Prior to working at the University of the West of Scotland,Mark was a Lecturer in Information Management at Napier University. His mainteaching areas are information systems analysis and design, internet marketing,e-business and m-business.

Dr AnneWigginsworks at the United Nations Conference on Trade and Develop-ment (UNCTAD), participating in the formulation of e-business policies and pro-grammes for developing nations. Her doctoral thesis, obtained at the LondonSchool for Economics and Political Science (LSE), examined the practical impact ofEU and UK e-business and innovation policy initiatives developed for SMEs andentrepreneurs, based on the experiences of the adoption and implementation ofe-business models by seven UK case organizations. The self-directed researchthesis of her master’s degree, obtained at the University of London’s Birkbeck Col-lege, examined the issues surrounding the use of the internet in cultural organiza-tions. Before joining UNCTAD, Anne provided senior-level strategic new mediaand IS consulting services to a range of multi-sector clients. She has been a rev-iewer for the Journal of Electronic Commerce in Organizations and the Journal of Elec-tronic Business. She was an Undergraduate Examiner at the University of London,for Computer-Based Information Systems and Introduction to Information Sys-tems, required subjects for the university’s Bachelor of Science degrees in Econom-ics, Management Finance, and Social Science. Her areas of interest are e-business,technology and innovation policies for SMEs and entrepreneurs, and innovationpolicy development. She has written widely on these subjects.

John Wright is Director of Information and Clinical Support Services, NHS(Scotland) Ayrshire and Arran Health Board. John is a graduate of the Univer-sity of Glasgow and has been employed in the IT and Information Services in-dustry in both the public and private sectors. He was formerly Director ofInformation Services in Glasgow District and Glasgow City Councils and actedas professional adviser to COSLA on local government IT matters. John was re-sponsible for planning and managing the transfer of IT systems from the formerStrathclyde Regional Council to the 12 new unitary authorities, following localgovernment reorganization in 1996. From 1998 until 2002, John worked as Dir-ector of IT and Communications with COSLA and managed the national LocalGovernment Programme for the Year 2000 as part of a national implementationteam reporting to the Scottish Executive. Subsequently he acted as the localgovernment adviser to the Scottish Executive on the Modernising GovernmentProgramme, before moving into the Health Sector in 2002 under contract to theScottish Executive with responsibility for managing a team setting up the newScottish Health Council as part of NHSQIS. He was appointed as Director ofKnowledge Management and eHealth in NHS Ayrshire and Arran in January2005 and subsequently Director of Information and Clinical Support Servicesand is the current Chair of the national e-health CPD working group.

About the Authors xxxix

Walk-through Tour

Conclusion – each chapter ends with a comprehensivesummary that provides a thorough recap of the keyissues, helping you to assess your understanding andrevise key content.

Learning objectives – appear at the startof every chapter to help you monitor yourunderstanding and progress.

Introduction – an introduction to each chapteroutlines the kinds of principles and issues youwill meet in each section.

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Review questions and tasks – are providedto help reinforce and test your knowledge andunderstanding, and provide a basis for groupdiscussions and activities.

Key further reading – comprehensive references at theend of each chapter allow you to explore the subjectfurther and act as a starting point for projects andassignments.

Key learning points – bullet points at the end ofeach chapter focus on the main ideas that havebeen discussed.

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1 Business Strategy for theDigital World

Colin Combe, Glasgow Caledonian University,UK

Laszlo Nemeth, Dex, Hungary

What we will study in this chapter

By the end of this chapter, you will be able to:

l Appreciate the evolution and development of strategic managementthinking;

l Develop an understanding the key developments in the digital economy;

l Comprehend the components of the Positioning, Resource-Based Viewand Dynamic Capabilities theoretical perspectives and be able to under-stand their application in the context of e-business;

l Critically assess the value adding characteristics of using the internetfor e-business;

l Develop an understanding of strategies for competitive advantage inmobile commerce (m-commerce).

1.1 Introduction

The modern business environment is influenced and shaped by three dominantdrivers – globalization, collaboration and knowledge (including innovation). Eachis enabled and enhanced by developments in information and communicationstechnologies (ICTs) such as the internet, mobile and satellite communicationsand fibre optic cable. These new technologies have contributed to the emer-gence of the digital economy based on the global network of communications.The digital economy is characterized by the use of ICTs to undertake businessprocesses (e-business), effect transactions along the supply chain (e-commerce)and the coordination of entrepreneurial activities based on knowledge, innov-ation and creativity.

1

The business strategies of firms have changed to take advantage of the oppor-tunities presented by the digital economy. Strategies for competitive advantage inthis new economy are not based on mass production and cost reduction, but haveevolved to include firms’ ability to seek opportunities and adapt to changes in mar-ket conditions, embrace change through innovation and embed learning in theorganization.

1.2 The development of strategic management

Strategy refers to a long-term action plan for achieving the stated aims of an organi-zation. Strategic management, although not a discipline in itself, forms an import-ant part of the study of organizations. Typically, strategic management is expressedfrom a ‘top-down’ perspective of the decisions of managers in organizations. Stra-tegic management involves setting the goals of the organization, choosing themostappropriate actions for achieving aims, and fulfilling the aims over a set timeframe.Managers involved in formulating a strategy undertake a series of decisions andactions designed to achieve stated aims based on an analysis of their internal andexternal environments. Strategic management is by its very nature iterativeand, therefore, involves a process of feedback and learning as ameans of informingfuture actions.

How strategy happens is a theme that has generated significant academic debate(Pascale, 1984; Mintzberg and Quinn, 1998; Ansoff, 1991). Mintzberg (1978) makesthe distinction between intended, realized and emergent strategies. Intended strat-egy is conceived at executive level management in organizations and is the outcomeof a process of negotiation, bargaining and compromise between participants. Therealized strategy is the one that is actually implemented and may only be partiallyrelated to the intended strategy. Realized strategy, in Mintzberg’s view, is deter-mined by emergent strategy; that is, the strategy that emerges from the perceptionsand discussions made by participants in formulating the intended strategy in lightof changes in the external environment. Two divergent schools of thought evolvedaround the question of how strategy happens – the Design School, where strategyis viewed as a rational and analytical process, and the Emergence School, wherestrategy is seen as the product of high-level organizational decision-making.

The origins of strategic management as a focus for research can be traced tobusiness case studies produced in the 1950s and the work of Peter Drucker (1954)and Philip Selznick (1957). Drucker was one of the most prolific writers in strategicmanagement and developed the concept of management by objectives (MBO).Importantly, he recognized the value of intellectual capital in organizations, andthe role of what he termed ‘knowledge workers’ in the success of firms. Selznick iscredited with developing the first model to match internal and external factors as abasis for analysing the strengths and weaknesses of firms. Strategic managementin the 1950s and 1960s was characterized by planning and control in organizationswhich relied on forecasting techniques, budgetary control mechanisms and sys-tems for project management.

Much of the early discourse on strategic management stems from the discip-line of industrial organization or industrial economics. The Austrian School ofeconomics has also been instrumental in influencing thinking around strategicmanagement. In particular, Schumpeter (1934) developed theoretical perspectives

2 Strategic Information Systems Management

on new value creation through technological change and innovation. Sources ofinnovation in Schumpeter’s view included new products, new means of produc-tion, new markets, new sources of supply and the reorganization of industries.The concept of ‘creative destruction’ was arguably Schumpeter’s most significantcontribution. Here, technological change creates opportunities for entrepreneursto acquire rents before the innovation that underpins the change becomes diffusedthroughout the industry. The so-called ‘Schumpeterian rents’ arose from risk-taking activity by knowledgeable entrepreneurs in a rapidly changing, uncertainand complex environment. The resonance of the Schumpeterian view in relationto the modern e-business environment is unambiguous and accounts for thecontinuing reference to his work among more contemporary theorists.

Industrial economics and industrial organization provided the basis for the de-velopment of strategic management theories in the 1950s. The dominant approachin this era was the structure–conduct–performance paradigm developed byMason in the 1930s and further elaborated upon by Bain (1959) and Scherer (1980).The model has it that performance was dependent upon the conduct displayed bybuyers and sellers in any given market based on a range of criteria such as prices,investment, advertising, technological development, firm collaboration and so on.In turn, conduct was dependent on the structure of each given market defined bythe number and size distribution of sellers and buyers, the degree of product dif-ferentiation, entry barriers, cost structures, integration and diversification.

In time, the linear relationship between the three elements comprising the S–C–Pmodel was challenged and the dominance of the paradigm gave way to the Posi-tioning Approach most commonly associated with the Harvard School. The roleand importance of key elements of the model, such as entry barriers and industryconcentration, is a focus of contention between the Harvard and Chicago Schoolsof strategic management thinking. The Harvard School views these as a means ofsecuring above average industry profits, whereas the Chicago School (as articu-lated by Demsetz, 1973, 1982 and Barney, 1986) view entry barriers as inform-ational, and concentration because of efficiency. In essence, the Chicago Schoolviews superior performance as stemming from the better use of underlying assetsdeployed by a firm rather than the exercising of economic power by restrictingsupply. This thinking can be seen in the development of the Resource-Based View(RBV) of the firm that was destined to dominate the 1990s and beyond.

The 1970s ushered in a period of economic, market turbulence, and great uncer-tainty leading to a shift in emphasis away from planning and towards strategy asfirms sought ways and means of improving performance and profitability. The the-oretical perspectives relating to firm size, growth and the portfolio of assets theyowned dominated strategic management thinking in this era. The Profit Impact ofMarketing Strategies (PIMS) found favour amongst many analysts and was widelyused to determine the link between profitability and strategy. The premise of theoriginal theory was those large firms with high market share often proved to be themost profitable; a position that was later challenged by Harvard School writers suchas Porter (1980) who noted that small and medium sized businesses could alsoachieve high profitability. Much depended on the ability of the firm to positionitself favourably in the market, hence the emergence of the Positioning Approach tostrategy. The Positioning Approach developed by the Harvard School achievedprominence throughout the 1980s and many of the frameworks and modelsdeveloped to aid analysis of the internal and external environment are still widely used.

Chapter 1 Business Strategy for the Digital World 3

The Harvard School comprises the work of many of the leading writers on stra-tegic management including Learned et al. (1965), Andrews (1971), Porter (1979,1980, 1985, 1996, 2001), Ghemawat (2002) and the consultants from McKinsey andthe Boston Consultancy Group. The initial output of the school featured a descrip-tive account of strengths, weaknesses, opportunities and threats (SWOT) as a basisfor analysis of both the internal and external environments. By combining theSWOT framework with selected concepts from industrial economics, Porter (1979)developed the five-forces (explained below) and value chain (unpacked below)models for external and internal analysis respectively. These theoretical modelscan be used as a basis of determining why some firms’ strategies are more success-ful than others and why some industries are more attractive than others. The fiveforces model focuses on the key factors that determine the competitive environ-ment at industry level. It is not suitable for understanding the strategies of individ-ual firms. For that, the value chain model is applicable where analysis is basedaround the identified value-adding activities categorized under primary or sup-port activities. The value chain model is recognition by the Harvard School thatsources of competitive advantage could reside within an organization and that in-ternal activities have strategic significance, a theme that was central to the devel-opment of the Resource-Based View (RBV).

The Harvard School responded to the coherence of the RBV by updating its as-sessment of what strategy is. Porter (1996) incorporated some of the RBV ideas intohis revised definition of strategy including the need to make trade-offs betweenvalue-adding activities and the need to create a ‘hard-to-replicate’ fit among partsof the chosen value-adding activities carried out in firms. Porter’s (2001) revisionof his strategic management thinking was influenced by the emergence of theinternet as an important, and disruptive, technology in the business landscape.Senge (1990) set the scene by linking a firm’s success to the effective managementof information and creation of an organizational structure that supports the use ofinformation in generating learning, innovation and creativity.

The internet provides an effective medium for information gathering, storageand use and many firms have based their business models around the applicationsof this medium of communication. This gave rise to the concept of the virtual valuechain. Porter’s original model was designed with a manufacturing company inmind but he later revisited the concept to offer an account of the influence of theinternet in driving added value (Porter, 2001). Slater (1998) highlighted the key dif-ference by recognizing that while the internet can be used to share informationamong key stakeholders such as suppliers and customers, unlike physical goods itdoes not diminish through use. This alters the supply and demand dynamic suffi-ciently to require firms to develop strategies to exploit the opportunities anddeal with the threats that this change brings. A key distinction is that where thephysical value chain acts as a support mechanism, the virtual value chain has astrategic function. The significance of this is evident when discussing the develop-ment of the digital economy.

The Resource-Based View (RBV), as developed Wernerfelt (1984) and Barney(1991), has its roots in industrial organization and industrial economics and thework of Coase (1937) and Williamson (1975). The RBV more closely links theinternal capabilities of firms to levels of competitiveness (Grant, 1991). Prahaladand Hamel (1990) contributed to the understanding of the RBV by discussing stra-tegic management from the perspective of the creation of core competencies


around which firms build and deploy a portfolio of assets to achieve a competitiveadvantage. The RBV can be used as a basis for determining which of a firm’sresources can best be deployed to create a competitive advantage, and how thoseresources help sustain a competitive advantage (Eisenhardt andMartin, 2000).

The RBV was developed to reflect fully the broad range of resources availableto organizations in their quest for competitive advantage. In particular, the RBVrecognizes the intangible assets as well as the tangible ones that comprise theresources within organizations. The model emphasizes the use of firm-specific re-sources (or assets) such as skills, expertise, experience and knowledge that workerspossess. Resources and organizational capabilities are closely related. Resourcesare the portfolio of available assets that are owned by the firm, and organizationalcapabilities are the attributes that transform those resources into added value. Incontrast to the environmental model developed by Porter (1980), the RBV focuseson the internal analysis of resources and organizational capabilities as a source ofcompetitive advantage. The coherence of the RBV arguments encouraged Porter(1996) to revisit his conceptualization of strategy and led to his recognition that‘hard-to-replicate fit’ among the parts of an organization’s activity system plays akey role in determining competitiveness.

As previously noted, the RBV emphasises intangible resources and the gener-ation and sharing of knowledge as a resource. Consequently, the RBV overlapsthe Knowledge-Based View (KBV). As the term suggests, the KBVof the firm em-phasizes knowledge as the key resource in organizations. Competitive advantageis derived from the superior use and integration of tacit knowledge (know-how),rather than explicit knowledge (knowing about). Nonaka and Takeuchi (1995)highlight the differences between knowledge and information by emphasizingthe action-orientated characteristics of the former. The KBVemerged as a result ofthe growing recognition throughout the 1990s that competitive advantage didnot necessarily stem from the dynamics of the industry in which firms compete,but rather from the process of acquisition and use of resources by a firm. Grant(1996) noted that the acquisition and use of knowledge needs to become firmlyembedded in an organization through policies, routines, systems, culture and soon. Information technology plays a key role in the formation of the KBVas it aidsthe gathering, storage, use and dissemination of knowledge both throughout theorganization and to external partners.

One of the main criticisms of strategic management is the static nature of manyof the models designed to aid understanding of what is essentially a dynamic phe-nomenon. Teece et al. (1997) addressed this weakness by introducing the conceptof ‘dynamic capabilities’. These capabilities refer to the ability to integrate, buildand reconfigure internal and external competencies with competitive environ-ments characterized by rapid change. The dynamic capabilities theory allows thefluid dimension that is lacking in the RBV by focusing attention on how resourcescan be developed and integrated into the firm and then released as a means of cre-ating a competitive advantage.

In a rapidly changing environment, the ability of firms to find new means ofcreating a competitive advantage is key. Dynamic capabilities can help gain a com-petitive advantage by reconfiguring current resources, gaining new resources ormaking better use of other resources.

This section has outlined the key developments in the evolution of strategicmanagement theories and offered a critique of the relative merits and limitations


of each. The emergence of the internet onto the business landscape in the mid-1990s provided an example of how innovation and technological development caneffect change. This in turn provides the impetus for academics to adapt existingtheories or invent new ones to aid their understanding of the new realities affect-ing strategic management. Table 1.1 summarizes the development of strategicmanagement thinking since the 1950s by highlighting changes to the dominantapproaches and themes, the key issues relevant to each era, techniques for analysisand the organizational effects.

1.3 The development of the digital economy

One of the key characteristics of the 20th century was the technological advancesthat changed the lives of people around the globe. Technological change has had afundamental effect on the business community too as the means of producing andselling products, communicating with customers and stakeholders, and adminis-tering the business process have all been subject to transformation using new tech-nologies. The most significant event driving this change was the development ofthe World Wide Web (WWW) in the mid 1990s. This allowed previously disjointedcomputer systems to link up on a global scale and ensured the commercial viabilityof the internet as a medium of communication. Managers of firms quickly realizedthe potential of using the internet and its adoption by commercial businessesshowed exponential growth throughout the late 1990s and into the new millen-nium. Competitive advantage was sought by exploiting opportunities for extend-ing market share, producing new products and services, establishing new types of

Table 1.1 The development of strategic management

1950s1960s/early1970s Late 1970s/1980s Late 1980s/1990s 2000s

Dominantapproach

Business casestudies

Corporate-levelplanning

PositioningApproach

Resource-BasedView

Dynamiccapabilities

Themes Planning andcontrolling

Company growth Industry and marketselection

Competitiveadvantage

Innovation,creativity,change

Key issues Budgets andcontrolmechanisms

Diversification andmergers/acquisitions

Strategies forindustryleadership

Building newcapabilities

Agility,opportunistic,speed

Techniques Operatingsystems,forecastingS-C-P

Forecasting,Identifysynergies

Five forces Knowledgemanagement, IT/IS, learning

Collaboration,knowledgemanagement

SWOTValue Chain

Organizationeffects

Controlled,hierarchical

Planningdepartments

Divisional, multi-national

Reengineering,Restructuring,outsourcing

Global networks,flat structures


relationships with customers and suppliers and creating efficiencies in businessfunctions. The use of the internet for these purposes was termed e-business.

There are many different definitions of e-business and the term is sometimesused interchangeably with the term e-commerce as there is an overlap betweenthese two concepts. Whilst e-commerce is concerned with buy-side and sell-sidetransactions, e-business extends to incorporate electronic marketing, procurement,customer service, distribution, transactions fulfilment and the automation of busi-ness processes. The internet can be used for communicating with, and selling prod-ucts or services to, customers. This is termed business-to-consumer (B2C) trade. Thesale of products or services to other businesses is termed business-to-business (B2B).

The internet and other ICTs have played a key role in transforming business byproviding the means to increase efficiency, speed and quality of delivering prod-ucts and services to customers. Some of the key attributes include increasing effi-ciency in the process of transactions between buyers and sellers; giving customersaccess to information on prices, availability, discounts, delivery times, sales policiesand promotional material; increasing collaboration between partners along thesupply chain (Kaplan and Sawhney, 2000; Muhanna, 2005); offering constant avail-ability so that transactions can occur at any time in the connected world; the re-moval of traditional boundaries in organizations such as time and distance; theautomation of internal processes to increase efficiency and speed (Dutta andSegev, 1999); and the building of more in-depth and longer-lasting relationshipswith customers through personalization and customization of products and ser-vices (Amit and Zott, 2001; Baura et al. 2004).

The emergence of the digital economy has transformed both business and thewider economy. The key factors that can determine competitive advantage in thedigital economy involve firms being flexible, opportunistic, quick to market, col-laborative and specialized in their niche. Many activities and functions are under-taken by small groups of workers in various locations around the globe, all ofwhom rely on ICTs to communicate with partners and customers. The generationand sharing of knowledge underpins the competitive drivers of innovation andcreativity in a rapidly evolving business environment.

The differences between the traditional economy and the digital economy are sig-nificant. For example, organizational structures have evolved from being hierarch-ical to networked or virtual. Many employees work remotely from the centres ofbusiness and use technology as a means of communication, collaboration and coord-ination in their working lives. This also reflects the changes that new technologieshas brought to the productive process as the emphasis swings away from relianceon heavy machinery to mass produced products and more towards knowledge andcreativity. This change is evident in the factors that drive growth and competitive ad-vantage in the digital economy. Growth is highly dependent on innovation, know-ledge and creativity as firms seek continually to add value to customers.Competitive advantage invariably stems from the ability of firms to link innovation,knowledge and creativity to the speed and efficiency with which they can produceand sell high quality, value added products and services to customers. The produc-tion process in many modern businesses needs to be agile and flexible enough toadapt to the demands of constant change. The concept of change also permeatesthroughout the firm to inform the dominant culture within the organization.

The development of the digital economy in general and e-business in particu-lar, has drawn the attention of academic writers. Contributions include analysis


of e-business models (Timmers, 1999; Lee, 2001; Ropers, 2001); value-adding ac-tivities (Rayport and Sviokla, 1995; Amit and Zott, 2001); consumer behaviour(Kauffman and Wang, 2001) and strategies for competitive advantage (Shin,2001; Combe, 2006) among others. The development of e-business has forced areview of the value of traditional business models and focused attention on howICTs, including the internet, can be used as a basis for creating new types ofbusiness models and the strategies that are built around them.

Many e-business model definitions feature an architecture for informationflows that underpin value added product or service delivery and a source of rev-enue (subscription, advertising, etc.). Key components of e-business models typic-ally comprise strategy, structure, business processes, value chain and corecompetencies. Technology is another key feature that should be included. Crucially,an e-business model differs from traditional models by emphasizing the technology-driven interactivity of key actors along the supply chain as a means of adding value,increasing efficiency, and building new relationships with suppliers and customersand creating partnerships. However, the development of e-business models has notbeen without its critics. Porter (2001) noted that the empirical use of the e-businessmodel conceptwas unclear and lacked theoretical rigour.

Another effect of the digital revolution has been the evident convergence of in-dustries and technologies. Where once, industries such as telecommunications,broadcasting and computing were separate sectors, now they have converged toprovide a range of products and services that rely on the overlap of activities andattributes that characterize each. For example, media content in the form of video,audio or text-based products can be distributed via the internet, satellite, cable,compact disc and accessed through different platforms such as television, homecomputer, mobile wireless phone or PDAs among others. The convergence has notonly been evident in the technologies that support these industries, but also in thefirms that supply the products and services. Collaboration and consolidation havebeen key features of the global multimedia industry with more and more marketshare being vested in fewer firms. Firms such as News Corporation and Googlehave become increasingly powerful as they acquire ever-greater influence in thesupply of media products and services around the world. Other industries havealso been radically changed by the digital revolution such as financial services,travel, retailing and logistics and distribution. All have acquired the types of hard-ware and software that helps deliver better quality products and services faster,and often cheaper than ever before. Key to the success of competing firms in thedigital world is the creation of effective strategies for competitive advantage.

This chapter focuses on the theoretical perspectives of the Positioning Ap-proach, the Resource-Based View and dynamic capabilities to aid the understand-ing of strategies for e-business in the digital world. The Positioning Approachpresents the generic strategies, five forces and the value chain models as a basisfor analysing the external and internal environments of firms that engage e-busi-ness activities as a means of creating a competitive advantage. The Resource-Based View is used as a means of identifying specific resources and capabilitiesthat are difficult for rivals to imitate and that enable superior performance in thee-business environment. This includes complementary resources and capabilitiesthat link online and offline activities. The dynamic capabilities theory focuses at-tention on the capacity of the firm to renew existing competencies in a rapidlychanging environment.


1.4 The Positioning Approach

The Positioning Approach can be used as a basis for discussion in the context ofe-business. Porter’s models of generic strategy, five forces and value chain providethe theoretical underpinnings of the analysis. The generic strategies model is, asthe name suggests, applicable to many firms. The five forces model is similarly gen-eric and focuses on competitiveness and external factors. The value chain model,on the other hand, has an internal focus and can be applied to individual firms.

1.4.1 Generic strategies for e-business

The generic strategy model developed by Porter (1980) was created to help firmsovercome the constraints that emerge because of external environmental analysis.The model features strategies of cost leadership, differentiation and focus. Eachcan help firms achieve a competitive advantage. Cost leadership refers to firmswho are able to produce and sell products or services at lower cost compared torivals. Differentiation is a strategy for competitive advantage based on a firm’sability to make the product or service different from that produced by rivals. Thedifference must add value to customers. A focus strategy is the choice of marketsegment that firms aim their products or service at. The choice may entail a narrowfocus, whereby the scope of the market segment is detailed and clearly identified,or a broad focus where the scope of the market is defined by a group of segments.

Porter argues that a firm can achieve competitive advantage by being the leastcost producer in the industry. In e-business this may allow the firm to lower pricesbelow those of rivals, however, as competition in the internet economy is intense,the scope for doing so may be limited. More likely is the opportunity for loweringtransaction costs. Transaction costs are all those costs associated with the buyingand selling process such as searching for products and services, marketing infor-mation, decision-making and exchange. There are numerous ways firms can seeka cost leadership position including the adoption of a broad market focus; minim-izing marketing costs and customer service; limiting the range of products sold;employing the minimum number of staff; and investing only in cost reducingtechnologies such as information-based logistics. Cost leaders invariably imitateexisting and successful business models rather than incur the cost of creating newand innovative ones.

Another key element of the generic strategy model is differentiation. Many fac-tors drive differentiation such as timing, location, partnerships, organizationallearning and scale and scope of activities. Some of the most prominent means ofdifferentiating products or services in e-business include creating a strong brandand reputation; offering high quality website with ease of navigation and quicktransactions and fulfilment; creating effective marketing campaigns; offering cus-tomized and personalized products and services; and offering delivery times bet-ter than rivals as part of a superior customer service.

A focus strategy refers to a market segment targeted by a firm for selling its prod-ucts or services. Firms may target a particular group of customers with distinct pro-files based on age, incomes, geographical location, tastes, interests, gender and so on.Firms can channel resources into specializing in providing the types of products andservices that customers want in those segments. For example, effective marketing


and research into the market segment may reveal buying habits or reactions to prod-uct offerings that informs the firm’s future strategy. Personalization and customiza-tion may be features of this strategy as specialist knowledge of the market segmenthelps firms design and produce products and services to match the needs of the tar-get individual or group. There are also cost benefits to be gained by targeting a smallnumber of target groups, rather than spreading resources more thinly across a largenumber of market segments or even the whole market.

1.4.2 E-business value chain

Business activities and transactions that are undertaken via fixed or wireless infra-structure can be termed e-business. Activities that add value in this setting are re-ferred to as the virtual value chain. The virtual value chain differs from traditionalvalue chains, as it is not limited by organizational boundaries such as time and dis-tance. Among the many advantages that use of the internet can offer firms, themost prominent ones include real-time communications links with supply chainpartners and customers; increased efficiency in marketing and selling; improvedlogistics; and reduced transaction costs. Information is the resource that firms useto add value by creating linkages between suppliers, partners and customers.

Porter (1985) proposed the value chain model as a means of identifying thoseactivities that form the basis of a firm’s strategy for achieving competitive advan-tage by driving down costs or differentiating the product or service. The four keysteps to value chain analysis include:

l the definition of the strategic business unit under analysis;

l the identification of key activities;

l the definition of products or services;

l the determination of the value attached to each identified activity.

The primary activities include inbound and outbound logistics, operations,marketing, and sales and service. The support activities include firm infrastruc-ture, human resources, technology and procurement. Primary activities directlyadd value to the end product or service. The support activities indirectly add valueby providing the support necessary for the effective execution of the primary ac-tivities. The application of the value chain model identifies the activities that thefirm should undertake; how those activities should be undertaken; and the config-uration of those activities that enables value adding to products or service andforms the basis of increasing the firm’s competitiveness in the industry.

Porter ’s definition of value is determined by the amount buyers are willing topay for a product or service. Added value is measured by the total revenue afterthe cost of production has been met. Differentiation of products or services canadd value in all the value chain activities. Key sources of added value derivefrom the choices of activities that are to be undertaken; the links between primaryand support activities; integration of supply chain partners; the timing of activities;or location advantages. The value chain model is most appropriately applied tomanufacturing firms (although Porter and Miller (1985), recognized the value add-ing potential of information technology) characterized by physical flows of mater-ials. Thus, adaptations were needed for firms with core activities involvinginformation flows (such as insurance, banking, stock trading, etc.).


The emergence of the internet, and with it e-business and e-commerce, madethe need for a new value chain model acute as firms sought to contextualize theirstrategies around the new medium of communication. Rayport and Sviokla (1995)developed the virtual value chain model that more closely matched the activitiesof firms engaged in gathering, organizing, selecting, synthesizing and distributinginformation via electronic means. As Bhatt and Emdad (2001) note, there is a stra-tegic dimension to the role of information in the virtual value chain when it is inte-grated with physical activities to create value added products or services. Forexample, activities may include the gathering of information necessary to organizeand coordinate the logistics of matching demand with supply criteria. The physicalvalue chain activities may include the actual distribution of the product to cus-tomers. This is evident in the virtual value chain of the postal distribution com-pany FedEx as illustrated in Case Study 1.1.

One way the company succeeded in achieving this was to offer customersadded value service by developing and implementing software that allowedthem to track the progress of their packages from sender to destination. In manyorganizations, this is a vital added value as important functions and decisions mayrely on the delivery times of packages. For example, the transport of drugs in the

Mini Case Study 1.1 The virtual chain of FedEx

The core competence of FedEx is the efficiencyof inbound and outbound logistics that leadsto superior service. The business model is builtaround the collection, storage and distributionof postal packages. The key to competitive ad-vantage lies in bringing the packages to cus-tomers quicker and more efficiently than rivals.

FedEx has many decades of experience in this in-dustry sector and has built a brand name andreputation that ensures a high level of brandloyalty. However, the company needs to con-tinue to innovate and add value to customersto maintain that loyalty and with it competitiveadvantage.

Support activities

Primary activities

Infrastructure: Buildings, computers, transport, warehousing, IS

Human resources: Key skills in management, technology, functions

Technology: ICTs, internet, applications software, hardware

Procurement: Online purchasing of materials

Inboundlogistics

Real-timesupply

inventory

Automateddistribution

qualitycontrol

Outboundlogistics

Distributiontrackingsystems

Marketingand sales

Onlinemarketing

Personalizedcustomerrelations

Operations Service

Source: Porter (1980)


medical sector may mean the difference between life and death for a patient. Con-tracts that are time dependent and cannot be signed off electronically rely on quickdelivery. If customers can closely estimate arrival times of packages, their brandloyalty increases. Although this type of software is diffused throughout the indus-try now, FedEx were first to market with the added value service and this builtupon its existing competitive advantage in the global postal services industry.

1.5 The competitive environment

The branch of economics termed Industrial Organization (IO) had always beenfocused on public sector organizations and the aim of minimizing excess profit.Porter (1980) turned the attention towards private sector organizations where theaim was profit maximization. The five forces framework was an important tool foranalysing the central theme of relating average profits of industry competitors tothe competitive forces affecting the industry. Key forces include existing or poten-tial rivals, the power of suppliers and customers and the availability of substitutes.These are illustrated in Figure 1.1. Each of the forces has an influence on a firm’sability to compete in the industry. The combination of the five forces determinesthe potential for making profits in the industry and, hence, the industry attractive-ness. This helps to inform strategy as managers can decide whether to stay in theindustry and where best to deploy their resources. The five forces model is also auseful basis for analysing where a firm can improve its current competitive posi-tion and, therefore, contribute towards achieving a competitive advantage. Themain advantage of this model is that it sets the parameters around which empiricalinvestigation can be undertaken into the conditions that determine the attractive-ness of any industry.

The internet has presented a number of challenges and opportunities for firmssince it first became a tool for commercial use in the mid-1990s. Of particular stra-tegic relevance is the challenge that managers face of dealing with a rapidly chan-ging business environment. Technological development, changes to demandpatterns, increasing customer expectations, shifting coalitions between firms and

Figure 1.1

Five forcesframework

Threat of new substitutes

Threat of new entrants

Rivalry amongexisting firms

Bargainingpower ofsuppliers

Bargainingpower of

buyers

Source: Adapted with the permission of The Free Press, a Division of Simon & Schuster, Inc., from Porter, M.E.,

COMPETITIVE ADVANTAGE: Creating and Sustaining Superior Performance# 1985, 1998 by Michael E. Porter.

All rights reserved.


the effects of global connectivity are just some of the challenges presented by thee-business environment. The nature of these changes has required strategicmanagersto contextualize their strategies around the features of the e-business environmentand seek competitive advantage through reconfiguring their resources to exploit theadvantages that the internet can provide. In the first instance, strategic managershave to understand the environment in which they compete. The five forces modelcan be used to illuminate the competitive environment in the new economy.

The e-business competitive environment is characterized by a large number ofcompetitors, as the costs associated with entry are relatively low. Firms can easilyset up a website as a channel for communication with customers, suppliers andpartners. However, actually providing a product or service that adds value to con-sumers above that which is already provided by incumbents determines the suc-cess or otherwise of new entrants. The entry of new firms into an industry reducesthe potential for making profits for existing firms due to the increased competitionthey face. Thus, existing firms need to create entry barriers to reduce the threat ofpotential entrants. There are many different types of entry barrier but some of themost commonly employed in the e-business environment include switching costs,economies of scale and access to distribution channels.

There is a cost to be borne by the customer of switching loyalty from one prod-uct to another. Financial costs will be incurred if a contract has been breached;however, most likely, the cost will be reflected in the time, effort and administra-tion it takes to effect the switch. Firms can create switching costs by ‘locking-in’their customers to their website by continuously adding value. Potential rivalswould have to exceed the added value of existing firms and lower prices to coverswitching costs in order to persuade customers to switch loyalty. Firms can createa barrier to entry by spreading the cost of production over the number of unitsproduced. The greater the number of units produced the lower the average costsof production. New entrants would have to match at least the scale of productionof existing firms in order to compete. Existing firms who have been able to buildbrand loyalty and build in switching costs will be able to deter potential rivals fromentering the industry.

Firms need to be able to fulfil the promises made to customers when offeringproducts or services for sale. On time delivery of products and services is essentialin the e-business competitive environment. Some e-business products and servicescan be sent electronically and distribution is relatively straightforward and costeffective. The marginal cost of sending one more unit of information is almostzero. Exclusive rights to market and sell valuable information, such as the verylatest prices of stocks and shares, is a means of gaining a competitive advantage.However, there are greater risks involved when firms promote and sell productsonline, but are required to deliver the physical product to the customer. Con-sumers have greater expectations regarding delivery times in the online environ-ment. Firms who have established relationships with key distributors can create abarrier to entry for potential rivals.

Ease of entry to e-business attracts many competitors and raises the likelihoodof substitute products and services being made available by rivals. Customersbenefit from the increased competition and availability of substitutes as it offersthemmore choice and competitive prices. It is incumbent on the competitors to en-sure that their products or services deliver greater satisfaction to consumers thanthat of rivals in order to achieve brand loyalty and competitive advantage.


The internet empowers customers by allowing access to market information.This may include price comparisons, information on quality, delivery, availability,discounts and so on. Firms need to add value to customers in order to competeeffectively. The combination of ease of entry and the empowerment of buyers haseroded profitability in the industry as pressures to lower prices and/or add costsby producing better quality products or services have undermined the perform-ance of many firms. Relatively few firms have been able to make higher than in-dustry average profits due to their first-mover advantages such as building brandloyalty, exceeding a critical mass of customers on a global scale, and attaining a repu-tation for quality and service. Firms such as Amazon.com and eBay have been ableto absorb the pressures of buyer power by creating switching costs and ‘locking-in’consumers to their web offering by continually adding value. Porter argues that forthe majority of firms in the internet economy, the ease with which consumers canswitch loyalty and their access to market information ensures high bargainingpower resides with the consumer. This position has been challenged by critics ofPorter such as Karagiannopoulos et al. (2005) who note that greater access to marketinformation for consumers does not automatically result in added value. Customersmay still face poor quality products or inefficient service in the internet economy.

Although the internet can provide suppliers with access to a greater number ofbuyers, the power they wield is relatively low due to the ease of entry into the in-dustry, and the empowerment of customers through easy access to market infor-mation. Suppliers can increase their bargaining power by differentiating theirproducts or services. Technology can be used as a means of improving logistics,procurement and delivery times, all of which may add value to customers andensure their brand loyalty. However, increased bargaining power throughdifferentiation is usually short lived for most firms as rivals will quickly imitate thesuccessful differentiating service and erode any competitive advantage. Similarly,any advantage gained using new technology quickly erodes as that technology isdiffused throughout the industry.

Intense rivalry is one of the key characteristics of the internet economy as firmstake advantage of ease of entry, minimal overhead costs, access to a wider custom-er base, and cost savings in the operational and functional activities of the busi-ness. The potential of the internet for achieving profits attracted many suppliers inthe mid to late 1990s. This led to an imbalance between supply and demand lead-ing to the inevitable industry ‘shake-out’ in 2000. Many of the so-called ‘dot.com’firms disappeared leaving only those with a viable business model to compete.Since then the industry has recovered and many firms populate the online tradingenvironment. However, lessons have been learned and the industry has becomemore mature. Although rivalry remains intense, the business models employed byfirms are more robust as the benefits of the learning process of trading online fil-ters through to the management of e-businesses.

The Positioning Approach pre-dates the emergence of the internet on to thebusiness landscape. However, Porter argues that the internet is not a disruptivetechnology that undermines sources of competitive advantage, but rather en-hances their value. As the internet becomes ubiquitous throughout any industry,its use as a source of competitive advantage diminishes and is supplanted by trad-itional sources, such as added value products and services, intellectual propertyrights and distinctive capabilities. Porter views the internet as a means of support-ing a distinctive strategy rather than as a source of competitive advantage in itself.


Porter ’s view has not been without criticism. In particular, Tapscott (2001) notesthat the model lacks a dynamic dimension capable of accounting for rapid changein a fast evolving industry. The competitive environment may alter for manyreasons but, without the constant updating of the analysis, the model’s valuequickly becomes obsolete. Secondly, the nature of relationships between erstwhilerivals has changed. Porter ’s model is predicated on an assumption that all firmsengage in intense rivalry. In fact, the new economy is characterized by strategic al-liances, partnerships and collaboration between firms along the supply chains ofindustries. Finally, Tapscott disputes Porter’s view that the internet as a source ofcompetitive advantage is diminished as its use becomes diffused throughout in-dustries. He argues that the internet drives business innovations and that competi-tive advantage accrues to firms with strategies that best exploit the possibilitiesof internet application. Very often, it is the resources and capabilities of a firm thatdetermines how successful they are in this process. With this in mind, it is neces-sary to turn to the Resource-Based View for a better understanding of strategiesfor e-business in the digital age.

1.6 The Resource-Based View

Internal analysis can be undertaken by examining firm-specific resources and thecapabilities that are developed within the firm that allow it to compete in the in-dustry sector. IT-specific tangible resources can include financial (cash flow, bor-rowings, equity); physical (hardware, software, computers); technological (IS/ITapplications) or organizational (processes, control systems) resources. Intangibleresources include human (ITexpertise, skills, experience, knowledge); innovation(creativity, innovative ideas, technical aptitude); and reputational (quality, service,reliability, trust) resources. Organizational capabilities of the firm may involvecompetencies, value-adding activities and the ability to leverage advantage fromcombining tangible and intangible resources. Deployment of these resources andcapabilities determines the performance of the firm. Valuable and rare resourcescan be used by the firm to create a competitive advantage. The challenge facingmany firms is not just to create a competitive advantage, but to sustain it over along period of time.

The work of Barney (1991) has featured prominently in discussions aroundgaining and sustaining competitive advantage. He identified a firm’s resources ascomprising all the credits, organizational characteristics, processes, aptitudes, in-formation and knowledge controlled and owned by the firm. These are character-ized under general headings of physical capital, human capital and organizationalcapital. Strategies can then be developed and implemented to maximize the valueof these resources and gain a competitive advantage. Barney argues that for a firmto gain a competitive advantage through superior performance requires resourcesand capabilities to be rare, valuable, non-substitutable and non-imitable.

A competitive advantage is gained through the implementation of a value creat-ing strategy by a firm that is not simultaneously being implemented by rivals (orpotential rivals). Rivals are, therefore, unable to accrue the benefits of the strategythat achieves competitive advantage for the firm. Only if the resources are rare canthe firm gain and sustain a competitive advantage. Resources are valuable whenthey can be used to develop and implement strategies that enhance the efficiency


or effectiveness of a firm. If no close resource substitutes are available to rivals,then the firm can use them to develop and implement strategies to gain andsustain a competitive advantage. Inimitability refers to the inability of rival firms toimitate or copy a resource. Resource inimitability may stem from historical condi-tions (such as a scientific discovery); casual ambiguity where the link between thefirm’s resources and its competitive advantage is well understood (e.g. the brandname of Versace); and social complexity stemming from the interactions of employ-ees and others along the supply chain (e.g. the network relationships of Deloitte).

To sustain a competitive advantage, Barney suggests two conditions underwhich a firm can use its resources. Firstly, resource heterogeneity refers to a situationwhere a firm has the same mix of resources as rivals. This allows the firm to com-pete, but not to gain a competitive advantage. Only by attaining a mix of resourcesdifferent from rivals can the conditions for gaining a competitive advantage bemet. Secondly, resource inimitability refers to a situation where it is not the resourcesthemselves that create the competitive advantage, but rather the unique attributescreated from the use to which they are employed. Inimitability refers to theuniqueness of the attributes created by using firm-specific resources.

Perhaps the most cogent criticism of the RBVas expressed by Barney, is that thetheory is tautological – that is, the assertions made are true by definition ratherthan through empirical testing (Williamson, 1999; Priem and Butler, 2001). In par-ticular, critics point to the fact that only rare and valuable resources can, by defini-tion, be sources of competitive advantage. In addition, as value may be derivedfrom many different resource configurations, this precludes them as a source ofcompetitive advantage. However, some theoretical and empirical work has beenundertaken to address the issue of valuing resources (Brush and Artz, 1999; Hunt2000) but there is some way to go before this gap in the rigour of the RBV is closed.

1.7 E-business and the Resource-Based View

In e-business it is essential that firms effectively combine technical and businesscapabilities to be able to compete in industries that are characterized by high levelsof rivalry. To achieve competitiveness, firms need to acquire the appropriate IT in-frastructure, and business process capabilities to exploit that infrastructure. The ITinfrastructure represents business-critical and tangible IS resources that providethe basis for business applications designed to create a competitive advantage. Ex-amples of IT infrastructure include operating systems, data processing, platformtechnologies and telecommunications technologies. Byrd and Turner (2000) extendthis concept to incorporate IT management as a further component of IT infra-structure, thereby bringing the framework into the realm of the RBV by recogniz-ing the role of controlling, coordinating and managing IT resources andcapabilities in the quest for achieving competitive advantage.

Business processes are those activities that transform inputs into valuable out-puts and are a vital component of organizational capability. Managers need toidentify those business processes that form the firm’s value chain. Value can begained through effective management of business processes in two main ways.Firstly, through internal business processes along the value chain, such as logistics,operations, marketing or service, and secondly, through business processes thatengage with other organizations. The latter entails extending activities beyond the


traditional organizational boundaries. This is especially cogent in e-businesswhere firms seek competitive advantage by migrating current business processesonline, building business process capabilities that exploit internet technologies,and developing relationships around inter-organizational business processes.

To develop and implement a coherent strategy, e-business resources and cap-abilities need to be inextricably linked to IT infrastructure capabilities and businessprocess capabilities. IT infrastructure capabilities revolve around technology, theapplications of the technology and the management of the IT function. As previ-ously noted, business process capabilities revolve around internal functions acrossthe value chain and inter-organizational processes.

Mini Case Study 1.2 Swiss Re: Service innovation for a ‘second mover’ advantageand intellectual property

The Zurich-based firm Swiss Re is the world’slargest reinsurance organization with over 70 of-fices worldwide employing some 8000 people.In 2007 the firm reported a $3.95 billion net profitwhich, although down 9 per cent on the previousyear, was better than forecasters had predicted ina shrinking market. The sub-prime crisis in theUSA exerted intense competitive pressures onthe industry and firms such as Swiss Re havebeen forced to reassess their strategies as a re-sponse to the new economic reality. One of thekey features of the company’s strategy has beenfinding ways of extracting greater value from itsintellectual assets. In particular, Swiss Re has setabout a process of identifying, recording andprotecting its intellectual property in a more sys-tematic way to ensure maximum returns on in-vestments in innovation and creativity.One of the biggest threats to the economic

performance of reinsurance companies is theease of imitation of products and services by ri-vals. In some cases rival firms have gained acompetitive advantage based on the addedvalue of adapting existing offerings. This so-called ‘second-mover advantage’ has to be fac-tored into the risk assessment of bringing newproducts and services to market. Swiss Re has areputation for innovation in product and servicedevelopment from which much of the firm’svalue derives. However, the performance of theinnovations has been compromised by high vul-nerability to imitation. In response, the companyformulated a strategy for legally protecting its in-

tellectual property through patents. A patent is amonopoly right for the commercial use of an in-novation or invention. Swiss Re has developedcapabilities in service innovations such as newbusiness models, software solutions, pricing in-struments, audit systems, risk transfer schemesand online insurance products. The company hasformalized an intellectual property strategybased on increasing performance returns on in-vestments in innovations and limiting the trans-ferability of knowledge to third parties.The coherence of the rationale of the Swiss

Re intellectual property strategy is underpinnedby academic research that points to positive linksbetween the formation of a patent portfolio andcompany performance (Shane, 2001; Ernst,2001). Whilst intellectual property protectionthrough patenting is well established in theUnited States, the importance of it is a relativelynew phenomenon in Europe. Swiss Re is one ofthe first-movers in creating an intellectual prop-erty strategy that is aligned to corporate strategy.Initially the focus of attention was on the com-pany’s e-business-based reinsurance productswhere internal innovations had provided soft-ware solutions for efficient and secure process-ing of reinsurance transactions (Bader, 2007).Patent protection of the business model andsoftware means that product development canbe undertaken without the risk of the innovationbeing copied by rivals. In addition, new productscan safely be passed on to customers withoutthe risk of them being copied by third parties.


1.8 Strategic information systems and the RBV

The RBV has been used as a basis for examining specific strategic issues relating toinformation systems (IS) and information technology (IT). For example, informa-tion systems as a resource feature in the study by Kettinger et al. (1994) into the sus-tainability of competitive advantage and firm performance; Bharadwaj (2000) takesa RBV in an empirical investigation into information technology capability and firmperformance; Duncan (1995) examines measurements of information technologyinfrastructure from a RBV perspective; and Ray et al. (2005) adopt the RBV to linkinformation technology and the performance of the customer service process.

Firms need to implement strategies to acquire their information systems infra-structure. This can be done in two main ways: internally, through the develop-ment of their IS function; or externally, through outsourcing all or part of thedelivery of development, maintenance and operation of their systems. As ITwasincreasingly being used as a tool for implementing strategies throughout the1980s, the attention of academics turned to creating theoretical frameworks cap-able of supporting analysis. Porter ’s (1985) competitive strategy model was widelyadopted for the purposes of linking the use of IS to the development and imple-mentation of strategies capable of achieving sustained competitive advantage.However, as has been noted previously, by the 1990s faith in Porter’s model beganto wane. The RBVemerged as the dominant theoretical perspective for undertak-ing studies into how firms can leverage the advantages of IS into strategies forgaining and sustaining competitive advantage.

Henderson and Venkatraman (1993, 1992) recognized that, for IT to contributeeffectively to strategic development and implementation, required coherent linksbetween IS strategies and organizational strategies. That is, the IS functions had tobe firmly aligned to business goals, rather than the traditional emphasis on userneeds. This new thinking was characterized by an appreciation of broader IS func-tions that incorporated competence in organizational skills alongside the develop-ment of value-adding applications. The ability of firms to integrate these attributescan create synergies that lead to sustained competitive advantage.

A number of resources and capabilities surrounding IT have been identified asbeing key to gaining competitive advantage for firms. Feeny and Wilcocks (1998)take a broad view of IS capabilities by identifying the key criteria for competitiveadvantage as being business and IT vision, ITarchitecture design and delivery of ISservices. Core IS capabilities include leadership, business systems thinking, relation-ship building, architecture buying, contract facilitation and monitoring, and vendordevelopment. Mata et al. (1995) outline a typology of resources and capabilities that,if managed effectively, can lead to a competitive advantage. These include switchingcosts enabled by technology, access to capital, proprietary technology, and technicaland managerial IT skills. This latter capability is critical to developing and imple-menting IS strategies, and in particular, the acquisition of information systems archi-tecture. As noted previously, this can be achieved either internally or externally.Many firms have been tempted to outsource the IS function as a way of reducingcosts or as a means of releasing resources to focus on core activities. Although sav-ings can be made through outsourcing, the associated long-term benefits to firmsare an area of contention among academics and practitioners. If IT is viewed simplyas a factor of production, then it would be a relatively simple task to meet


Mini Case Study 1.3 IT and logistics in Hungary

Since the collapse of the Soviet Union in 1990many eastern European countries have under-taken radical economic and industrial transform-ation programmes designed to help firmscompete effectively in competitive markets andto generate economic growth. Hungary hastaken a lead in this process by creating the Eco-nomic Development Operational Program thatoffers incentives for foreign direct investmentthat leads to the creation of at least ten new jobsand generates a minimum of E10 million by eachfirm. The creation of the Investment and TradeDevelopment (ITD) in Hungary in 1993 has alsoplayed a significant part in raising awareness ofthe economic benefits of inward investment inthe country. In particular, the IT and logistics sec-tors have combined to exploit these advantages.Early investors in the post-communist era wereattracted by the low cost of outsourcing activitiesand functions, especially manufacturing. Whilstlow cost remains an attraction to many foreignfirms, other factors have shaped their strategyfor investing in Hungary. In the IT and logisticssectors these include a strategically importantlocation in the centre of the EU; a highlyskilled workforce with formal IT and logisticsqualifications ; modern facilities in specially de-signed warehouse parks ; high quality and effi-cient infrastructure including alternative transportmodes; a favourable legal framework and taxregime for trade and investment ; and estab-lished partnerships with universities and researchinstitutions.Trading conditions have informed the strat-

egies of IT firms investing in Hungary. Demandfor IT hardware and software in the public andprivate sectors has been on an upward trajectoryfor over a decade. There has been steadygrowth in demand for telephony services andfor both fixed and mobile wireless enabled com-puters. For example, Hungary has eight millionmobile phone subscribers from a total popula-tion of ten million. There is also a healthy exportmarket for IT products and services which is

growing yearly as the country’s increasing repu-tation for providing high quality and competi-tively priced IT products and services becomesmore widely known. In 2006 the IT sector ac-counted for around 8 per cent of GDP in Hun-gary with several global brand names relocatingto the country including Nokia, Ericsson, HP-Compaq, Siemens, Motorola and Philips. Import-antly, many of these firms are establishing theirresearch and development centres in Hungary, asign that their strategy extends to accessing keyskills as well as low cost.In the logistics sector there has been a dis-

tinct migration of activities eastwards with Hun-gary providing a focal point. The country’sstrategic location in the heart of an enlarged EUmakes it an ideal hub for distribution services.There are four European transport corridors thatpass through Hungary giving unparalleled ac-cess to European markets. Over 20 per cent offreight is transported by rail in Hungary and theregional centre of Zahony is a junction and re-loading centre for European standard gaugerailways. The privatization of Budapest Airportled to the opening of a new cargo terminal in2007. Other regions of Hungary will benefitfrom the privatization and transformation offormer military airports into regional logisticalcentres. Finally, the river Danube provides a vitalchannel for transporting goods with links towestern Europe as it converges with the riverRhine. Intermodal logistics centres and con-tainer terminals are planned at strategic loca-tions along the Rhine-Danube waterway. All ofthese initiatives and activities rely heavily on theuse of ICTs. This has led to significant invest-ments in sophisticated ICTs that support high-quality logistics technologies such as GPS,broadband internet services, supply chain man-agement software and RFID.The attractiveness of Hungary as a centre

for locating IT and logistics activities has beenborne out by the number of globally recog-nized firms investing in the country. In 2007

"


express delivery group DHL invested 18 millionEUR in the construction of a logistics centre inBudapest. Other companies such as Audi, Gen-eral Electric and National Instruments have simi-larly built their European growth strategiesaround investments in Hungary. One of the keyassets the country provides in IT and logistics isthe intellectual resources of a highly qualifiedworkforce. Major universities in Hungary pro-duce around 500 graduates with specialist

logistics qualifications and a further 200postgraduates annually. In total around 5000students receive logistics training in ten highereducational institutions around the country.There is close collaboration between businessand universities in developing curricula to fit in-dustry needs. It is this concentration of know-ledge, skills, expertise and experience thatattracts companies as much as the potential forlowering costs.

"

Mini Case Study 1.4 EDS in Hungary

EDS is a subsidiary of Hewlett Packard and oper-ates in the highly competitive technology ser-vices sector, specializing in creating businesssolutions for a wide range of clients in the manu-facturing, finance, healthcare, communications,energy and transportation sectors. The companywas a first mover in outsourcing informationtechnology in the 1960s and built an expertise inbespoke business solutions using IT. EDS Hun-gary was established in 1991 and now employsover 1000 workers at 30 different locationsaround the country. The investment in Hungarywas part of the firm’s global developmentstrategy of the early 1990s that entailed seekinglocations that offered key advantages such asproximity to concentrations of economic activity ;political and economic stability ; advanced com-munications infrastructure ; competitive labourand delivery costs ; a track record of successfulinward investment ; and industry supportmechanisms.Most of the services EDS provides stem from

the three regional centres the company hasestablished in Hungary. These include theData Entry and Document Management Centrethat specializes in data entry, data processing,

archiving and scanning; the Contact Centre thatprovides desk operations ; and the RegionalFinance Centre which is part of a network ofshared service centres that provide multipleservices to a wide range of clients. EDS provideservices in finance, human resources and pro-curement from this centre. The strategy forgrowth is built around managing the intellectualcapabilities of the workforce in each of the ser-vice sectors. In particular, EDS has identified in-novation in procurement and logistics as key tomaintaining the competitive advantage in the re-gion. Here, the company has created strong linksto the educational sector where the next gener-ation of human intellectual capital emerges. Thecollaboration with the educational sector is vitalto match skills with the demands of the logisticsindustry and includes key skills in computing, en-gineering, design, management and communi-cations. To sustain competitive advantage intothe future, EDS has embarked on an ambitiousinvestment programme in human resource man-agement to acquire and retain the key skills thatwill not only meet the challenges currently facedby firms in the logistics sector, but also leadchange in the industry.


requirements from the vast array of software and hardware on the market. This,though, is unlikely to yield a competitive advantage in itself. Rather, it is the organ-izational skills that transform resources and capabilities into competitive advantage.

Critics of the strategic value of outsourcing are sceptical of the availability andquality of key skills on the open market that are relied on to contribute to gaining acompetitive advantage. Even where competitive advantage is achieved through out-sourcing the IS function, this approach contributes little to the development of com-petencies that are a prerequisite for sustaining the competitive advantage.Scarbrough (1998) noted the loss of technological and organizational competenciesthrough outsourcing IS functions when highlighting the strategic limitations of thisapproach.

1.9 Dynamic capabilities

Both the Positioning Approach and the RBV paradigm are limited by the static na-ture of the models used for analysis. Teece et al. (1997) further developed the RBVby introducing the concept of dynamic capabilities to address this shortcoming.The RBV fails to explain fully how some firms are able to gain competitive advan-tage in markets characterized by uncertainty and rapid change. Simply having ac-cess to appropriate value-adding resources is inadequate to sustain a competitiveadvantage in such environments. The dynamic capabilities theory addresses thisby referring to firms’ capacity to renew existing competencies within a rapidlychanging and dynamic environment such as e-business. The capabilities are effect-ive uses of resources available to the firm. As noted previously, dynamic capabil-ities can help gain a competitive advantage by reconfiguring current resources,gaining new resources, or making better use of other resources.

Rindova and Kotha (2001) applied the dynamic capabilities approach to e-business and determined that to achieve competitive advantage, firms had to de-ploy their current resources in new and innovative ways and, in addition, acquirenew and valuable resources. Further, to maintain competitiveness, these processesneeded to be continuous. Eisenhardt and Martin (2000) take the view that the mainthreat to firms in dynamic markets comes not from rivals, but from internal pres-sures to create dynamic capabilities for gaining and sustaining competitive advan-tage. These pressures relate to the need for organizational or strategic capabilities,such as product development, strategic alliances, decision-making and knowledgecreation and sharing, that align with or even contribute to market change.

The need for more empirical testing was highlighted by the differing views ofleading protagonists of the dynamic capabilities theory. Whereas Teece et al. (1997)view dynamic capabilities as being a unique feature of a firm, Eisenhardt and Mar-tin (2000) found that particular forms of dynamic capabilities were common acrossdifferent firms. The debate sparked greater interest in the role of dynamic capabili-ties and the theory was adopted by Lawson and Samson (2001) when investigatinginnovation; Bowman and Ambrosini (2003) in corporate strategy; Sher and Lee(2004) on knowledge management; and Newbert (2005) on new firm formation.

1.9.1 Dynamic capabilities and e-business

Prerequisites for effectively competing in many different industries are the RBVattributes of being valuable, rare, inimitable and non-substitutable (VRIN). These


provide the basis for developing value-creating strategies. However, to competeeffectively in a dynamic environment such as e-business requires the reconfigur-ation of existing resources and/or the acquisition of new resources. Firms compet-ing in the e-business domain need to identify and deploy relevant dynamiccapabilities to seek competitive advantage in the e-business environment. Danieland Wilson (2003) propose a set of dynamic capabilities for e-business transform-ation. These include:

l rapid strategic decision-making;

l acceptance of the need for strategic change;

l designing the value proposition to the e-business domain;

l reconfiguration of the service process.

Of primary importance is rapid strategic decision-making to match the pace ofchange in the competitive environment. This is arguably the most onerous task fa-cing managers as the development of strategy in the traditional economy normallyentails a process over a timeframe sometimes stretching to months or years. Tocompete in the e-business domain, this timeframe can be compressed to weeks,leading to the increased risk of choosing the wrong or inappropriate strategy, fail-ing to identify the key dynamic capabilities that form the core of the strategy, orfailing to link strategy formulation with implementation in a coherent manner.

Another dynamic capability is the recognition and acceptance of the need forstrategic change in the e-business domain. This is equally relevant to external aswell as internal stakeholders. A technique for acquiring this dynamic capability isto identify the key benefits that accrue to each stakeholder group through partici-pation in e-business processes and then to communicate those benefits to eachgroup. Software such as Supply Chain Management (SCM) and Enterprise Appli-cations Integration (EAI) can aid the process of communicating and demonstratingthe benefits of strategic change. Customers, as stakeholders, are another locus ofdynamic capabilities in this regard as firms need to find ways of communicatingthe value proposition to them within the specific environment of web-enabledpromotion. Whereas traditional businesses rely on the results of market testingand research for information on how customers react to a value proposition, thee-business domain requires quicker response rates. Hence, the dynamic capabilityis built around offering an experience to customers that they perceive as a value-added service, the customer response is communicated back to the e-business inreal-time and this, in turn, informs strategy.

Linking into the presentation of value propositions is the reconfiguration of theentire service process. The internet presents opportunities for firms to deepen andenrich the relationships with customers. Customers can take a more proactive rolein initiating and continuing dialogue with firms. The dynamic capability in thiscontext is the ability of firms to exploit the distinctive communications possibilitiesof the internet and embed them in their organizational structure and processes.For example, real-time, two-way communication between a customer and ane-business may result in the marketing function being able to channel specific pro-motional material to that customer in response to a specific request or as part of apermission marketing strategy (where the receiver permits certain promotionalmessages to be communicated to them).


It is also important to recognize that although dynamic capabilities can emergefrom innovation, as in the examples outlined above, they can also emanate from in-tegrating e-business into the current functions and processes of the firm. For ex-ample, maintaining a high level of innovation during the integration phase is adynamic capability, especially when one takes into account that integration invari-ably includes external partners. Another opportunity to develop dynamic capabil-ities exists in the ability to offer services across multiple channels. Finally, thereneeds to be an alignment of the e-business strategy with the corporate strategy.This alignment is necessary to maintain the relevance of the corporate vision andstrategic aims whilst pursuing dynamic capabilities that derive from formulatinge-business strategies that exploit the possibilities of the internet.

Another theoretical perspective of e-business dynamic capabilities is providedby Wang and Shi (2007). Here, the authors highlight three key sources of dynamiccapabilities as:

l market sensing;

l organizational learning;

l coordination.

Market sensing refers to the ability of the firm to analyse and understand the ex-ternal forces that influence its ability to compete. This may include factors such ascompetitor intelligence, market research, demand and supply functions and othermarket conditions. For example, superior market sensing helps firms detect new op-portunities in a market or identify new combinations of resources that improve cur-rent product or service offerings. Firms in the e-business domain who are able toacquire superior market sensing capabilities can leverage a competitive advantage ifthose capabilities are effectively integrated into their strategies for value creation.

Organizational learning can also provide the basis for gaining a competitive ad-vantage in dynamic environments. In this case, the firms’ ability to gather, store,analyse, synthesize, disseminate and use information effectively, and integrate thatcapability into their strategy, can create a competitive advantage. The availabilityof e-business software applications, such as Enterprise Resource Planning (ERP),Customer Relationship Management (CRM) and Supply Chain Management(SCM), can aid the process of organizational learning, but competitive advantageresults from the superior use of the learning that analysis of the information gener-ated by these applications brings. Integration of activities between partnersinvolved in an e-business venture brings forth new learning opportunities. Teeceet al. (1997) recognized the potential of collaboration as a means of increasing andimproving organizational learning. New knowledge, new resources or additionalresources created through organizational learning can be a source of competitiveadvantage. Internally generated learning can also help create a competitive advan-tage. For example, office equipment and maintenance firm Xerox issue engineerswith a customized PDA to input new and innovative ways of problem-solvingmachine malfunctions. The information is disseminated to other engineers usingthe technology and the organizational learning forms the basis of adding value toclients, bolstering brand loyalty and creating a competitive advantage.

The third element of the model relates to coordination. Competitive advantagecan be gained through the effectiveness with which the firm deploys its portfolioof resources to carry out activities that leads to superior performance. For example,


the management of IT resources can facilitate dynamic capabilities through know-ledge management (Sher and Lee, 2004). Coordination reduces inefficiencies byhelping to integrate activities across partner organizations, removing barriers toinformation flows, and speeding up operations. Dynamic capabilities in e-businessderive from coordination capabilities that reduce cost and/or increase efficiencies.Sustained competitive advantage may be derived if the coordination capabilitiesare difficult for rivals to match or imitate.

1.10 M-commerce

A key technological development affecting e-business is the emergence of the mo-bile wireless internet. This technology provides another channel for communica-tions and transactions – mobile commerce (m-commerce). There are manydefinitions of what constitutes m-commerce, but all feature the basic element ofinteractive communication for undertaking business using mobile devices. For itto be termed m-commerce, there has to be some economic or business element tothe communication. Watson et al. (2002) highlights how m-commerce has changedthe business view of time and space. Key concepts underpinning the m-commerceenvironment include ubiquity, universality, uniqueness and unison. There arenumerous types of technologies that can be installed in devices to facilitate m-commerce including Short Message Service (SMS), Bluetooth, Wireless Applica-tion Protocol (WAP) and 3G services.

Market penetration for mobile phones has been exponential in growth, fast-paced and global in scale. As mobile telephony services reached saturation inleading markets such as the USA, Europe and Japan, so manufacturers soughtcompetitive advantage by extending functionality and differentiating through de-sign. Whilst US consumers continue to use mobile phones primarily for personalcommunication, Japanese and European customers have sought additional func-tionality such as internet access, video streaming and photographic capability.Firms have responded by developing new mobile technologies such as thei-mode (internet service) and FOMA (3G mobile service) produced by leadingJapanese communications company DoCoMo.

1.10.1 M-commerce business models

Numerous advantages exist for suppliers and customers by using the mobile wire-less internet. Customers can access information in almost any location and fulfiltransactions much more quickly and efficiently. Suppliers can target customersbased on location, and provide services that are customized and personalizedquickly and efficiently at any time of day (Kalakota and Robinson, 2001). Businessmodels have been developed to exploit the m-commerce environment where noboundaries of time or space exist. For example, consumers can be sent text mes-sages to their devices giving them information on promotional offers in a particu-lar store. If the consumer then buys that product, they may be entitled to adiscount based on the text message received. This form of permission marketinghas become an important and effective marketing technique in the m-commerceenvironment. WAPenabled cell phones have internet access that allows customersto transact through mobile payments. Bluetooth technology extends the platforms


for communications by facilitating the exchange of information between mobiledevices, PCs and other devices.

1.10.2 The m-commerce value chain

Even more so than with e-commerce, partnerships form the dominant relationshipmodel in m-commerce. The value chain of m-commerce gives an insight into therole that each partner plays in the process and helps to reveal the strategies forcompetitive advantage in the m-commerce environment. Figure 1.2 outlines thekey players in the m-commerce value chain.

The technology vendor provides the platform for communications flowsbetween the application providers and consumers. This entails all maintenance ofall operations equipment. The infrastructure vendor provides the equipment thatenables the service to consumers. This consists of servers, data management andsystems integration hardware and software. The applications developer is respon-sible for converting internet-based content to the standards that enable wirelesscommunications. The content developer provides the specific services demandedby consumers. Finally, the mobile service provider maintains the links between allthe players in the m-commerce value chain and the consumer. This may entail theprovision of mobile devices, contracts, billing and so on. Firms that compete in them-commerce domain are reliant on the partnerships formed with the key playersalong the value chain.

1.10.3 Strategies for m-commerce

Many of the lessons firms learned in the e-commerce domain are being transferredto that of m-commerce. This is particularly cogent in the recognized need for stra-tegic alliances and partnerships. Strategic alliances create barriers to entry and ex-tend the competencies of firms competing in the m-commerce domain (Jelassieand Enders, 2005). Whereas issues of trust and experience underpin the longevityand nature of relationships, firms take a rational and pragmatic view of resources.Where there is a perceived lack of resources that enable a firm to compete, strategicalliances with firms that possess those resources will be sought. Resource depend-ency theory has it that firms will modify their dependency according to need(Pfeffer and Salancik, 1978). Although the growth of m-commerce has developedat a slower pace than e-commerce, the potential of the media for transactions hasled firms to establish relationships in order to secure a foothold in the industry.Previously cited barriers to growth, such as the lack of a common standard, slowtransmission, small screens and slow transaction times are being overcome and, in-creasingly, the mobile industry is gaining in importance. Firms such as eBay andStarbucks have developed payment facilities via cell phones, and Google, Yahoo!,

Figure 1.2

The m-commercevalue chain

Technologyvendor

Infrastructurevendor

Applicationdeveloper

Contentdeveloper

Serviceprovider

M-COMMERCE VALUE CHAIN Customer


Microsoft and others are vying for dominance in mobile email, Short Message Ser-vice (SMS) and other services. Others, such as Nokia, Motorola and Eriksson, focuson technological developments such as bar codes that facilitate enhanced informa-tion delivery to mobile phones. This enables shoppers to access to market informa-tion on their mobile phones whilst in the process of shopping in stores.

The next stage of the evolution of m-commerce is for firms to pinpoint theadded value of the media, and to leverage a competitive advantage from it. Thereis no consensus regarding the critical success factors for m-commerce with find-ings spanning social, economic, technical and business criteria. Research by Siauand Shen (2003) pinpointed trust as the key issue, whereas Haque (2004) foundthat the integration of m-commerce into their strategies for competitive advantagedepended on issues of pricing and security as well as trust. Buellingen andWoerter (2004) provide a typology of factors related to the provision of broadbandservices and complex applications as being critical to success. These include trans-mission speeds, security, usability and personalization among others. The lack ofconsensus on the critical success factors is manifest in the absence of a ‘killer appli-cation’ in m-commerce. In the early stages of the commercialization of mobiletelephony competitive advantage was deemed possible from firms creating amobile-specific strategy that could exploit consumer demand for personalized andcustomized content (Clarke, 2001). Although this is resonant with the modern m-commerce environment, it has taken longer than predicted for consumers to adoptthe mobile phone for functions other than communications.

Finally, it is clear that there is a high resource-dependency among many firmscompeting in the m-commerce domain. The relationships that stem from the trendtowards strategic alliances and partnerships can be viewed as a capability and a re-source. The m-commerce environment is dynamic and firms can leverage a com-petitive advantage by creating new capabilities and resources and/or extendingexisting capabilities and resources. The characteristics of the m-commerce com-petitive environment exhibit many of the elements found in the RBVand dynamiccapabilities theories. That is, the knowledge created is not imitable by any other al-liance or partnership because of the uniqueness of the relationship formed; thereis a high co-dependency among firms for acquiring new resources and capabilities;and each firm can offer a set of resources and capabilities that other firms may lackas a basis for alliances or partnerships. The mutual dependency ensures that eachfirm gains access to resources and capabilities that are valuable, rare and inimit-able. How each firm deploys those resources and capabilities determines its abilityto gain and sustain a competitive advantage in the m-commerce domain.

Conclusion

This chapter has introduced the development of strategic management thinkingby highlighting the key contributors to the field of study. Many of the theoreticalmodels and frameworks can be used as a means of critically analysing businessphenomena. Three main theories were used as a basis for explaining the develop-ment of strategies for e-business through use of the internet. In particular, the useof the Positioning Approach provided a useful framework for undertaking an an-alysis of the competitive environment within which many online firms operate.The limitations of the model are exposed when one tries to introduce a dynamic


element to the analysis. The Resource-Based View better reflected the wider rangeof resources and capabilities evident in e-business by taking into account intan-gible as well as tangible resources. The dynamic capabilities theory is designed toaccount for the fast changing and uncertain environment that characterizes thee-business domain. The development of the mobile wireless internet provides anadditional platform for buying and selling commerce (m-commerce). The competi-tive environment surrounding m-commerce is characterized by strategic alliancesand partnerships to address shortfalls in resources and capabilities of individualfirms. The take-up of m-commerce among consumers has been sluggish but devel-opments in supporting technologies and more coherent value propositions haveenhanced the commercial viability of the sector.

Key learning points

l Strategic management thinking has had to adapt to aid understanding of therole it plays in firms gaining and sustaining competitive advantage in thee-business domain.

l The development of the digital economy has transformed business and thewider economy by providing new and better quality products and services thathave global demand.

l The Positioning Approach to strategy is a useful starting point forunderstanding competitive environments but does not translate well toe-business because of the static nature of the model and the lack of recognitionthat many modern e-business firms collaborate and establish partnerships.

l The Resource-Based View (RBV) recognizes the intangible resources andcapabilities that form an important driver of competitive advantage in thee-business environment.

l Dynamic capabilities theory is an adjunct of the RBV designed to reflect therapidly changing and uncertain environment that characterizes e-business.

l M-commerce is highly reliant on strategic alliances and partnerships asindividual firms seek to acquire the resources and capabilities needed to, first ofall, compete effectively, and then go on to gain a competitive advantage.

Review questions and tasks

1. What are the main differences between the virtual value chain and a physicalvalue chain?

2. Highlight five value-adding characteristics of the internet for e-business.

3. In the Resource-Based View of the firm what key features must resources andcapabilities have to help gain and sustain competitive advantage?

4. Choose three different online retailers and highlight two examples of differenti-ation in each.

5. Identify three examples of dynamic capabilities in three different firms operat-ing in the e-business domain.


6. Research and critically assess the performance of m-commerce as a means ofbuying and selling goods and services in the UK.

Key further reading

1. Afuah, A., and Tucci, C.L., (2003) Internet Business Models and strategies: Text andCases (2nd edition), New York, NY: Irwin McGraw-Hill.

2. Atkins, M., (1994) Information technology and IS perspectives on businessstrategies, Journal of Strategic Information Systems, Vol. 3, No. 2, pp 123–135.

3. Bocij, P., Chaffey, D., Greasley, A. and Hickie, S., (2005) Business Information Sys-tems: Technology, Development and Management (3rd edition), Harlow: FinancialTimes Prentice Hall.

4. Caloghirou, Y., Kastelli, I., and Tsakanikas, A., (2004) Internal capabilities andexternal knowledge sources: complements or substitutes for innovation per-formance, Technovation, Vol. 24, No. 1, pp 29–39.

5. Chaffey, D., (2004) E-Business and E-Commerce Management (3rd edition),Harlow: Prentice-Hall.

6. Elliott, G., and Phillips, N., (2004) Mobile Commerce and Wireless Computing,New York, NY: Pearson Education.

7. Etemad, H., (2004) E-commerce: the emergence of a field and its knowledgenetwork, International Journal of Technology Management, Vol. 28, No. 6, pp 405–413.

8. Fahy, J., and Hooley, G., (2002) Sustainable competitive advantage in electronicbusiness: towards a contingency perspective on the resource-based view, Jour-nal of Strategic Marketing, Vol. 10, No. 4, pp 241–253.

9. Introna, L.D., (2001) Recognizing the limitations of virtual organizations, inS. Barnes and B. Hunt (eds) E-Commerce and V-Business: Business Models forGlobal Success, Oxford: Butterworth-Heinemann, pp 268–279.

10. Kalakota, R., and Robinson, M., (2000) E-Business: Roadmap for Success, Reading,MA: Addison-Wesley.

11. Liang, T., and Wei, C.P., (2004) Introduction to the special issue: mobilecommerce applications, International Journal of Electronic Commerce, Vol. 8,No. 3, p 7.

12. May, P., (2000) The Business of E-Commerce: From Corporate Strategy to Technology,Cambridge: Cambridge University Press.

13. Melville, N., Kraemer, K. and Gurbaxani, V., (2004) Information technologyand organizational performance: an integrative model of IT business value,MIS Quarterly, Vol. 29, No. 1, pp 283–322.

14. Pavic, S., Koh, S.C.L., Simpson, M., and Padmore, J., (2007) Could e-businesscreate a competitive advantage in UK SMEs?, Benchmarking: An InternationalJournal, Vol. 14, No. 3, pp 320–351.

15. Shapiro, C., and Varian, H.R., (1999) Information Rules: A Strategic Guide to theNetwork Economy, Boston: Harvard Business School Press.

16. Shin, N., (2001) Strategies for Competitive Advantage in Electronic Commerce,Journal of Electronic Commerce Research, Vol. 2, No. 4, pp 164–171.

17. Turban, E., Lee, J. King, D., and Chung, H., (2000) Electronic Commerce: A man-agerial perspective, New Jersey: Prentice-Hall.


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